Regulation and pricing of pharmaceuticals: Reference pricing or price cap regulation?

Abstract

We study the relationship between regulatory regimes and pharmaceutical firms' pricing strategies using a unique policy experiment from Norway, which in 2003 introduced a reference price (RP) system called "index pricing" for a sub-sample of off-patent pharmaceuticals, replacing the existing price cap (PC) regulation. We estimate the effect of the reform using a product level panel dataset, covering the drugs exposed to RP and a large number of drugs still under PC regulation in the time before and after the policy change. Our results show that RP significantly reduced both brand-name and generic prices within the reference group, with the effect being stronger for brand-names. We also identify a negative cross-price effect on therapeutic substitutes not included in the RP-system. In terms of policy implications, the results suggest that RP is more effective than PC regulation in lowering drug prices, while the cross-price effect raises a concern about patent protection.

Parallel imports and a mandatory substitution reform: a kick or a muff for price competition in pharmaceuticals?

“…Our results on therapeutic competition are consistent with Brekke et al (2009) and Ellison et al (1997) showing that drugs with the same active ingredient  generics in their case  are closer substitutes than drugs with different active ingredients but similar therapeutic effects.…”

“…8 The identifying assumption for these parameters is that no other variables, except those included in the specification, caused price changes that are correlated with facing competition from parallel imports. Since therapeutic competition can have important effects on prices (Ellison et al, 1997;Lichtenberg and Philipson, 2002;Brekke et al, 2009) The parameters β 4 and β 5 for the interaction variables describe how the reform has influenced the price effect of competition from parallel imports. A requirement for these parameters to be correctly estimated is that no excluded variable influenced the price effect of facing picompetition differently before the reform relative to after the reform.…”

“…Using instrumental variable method to account for potential endogeneity in the entry decisions of 3 Theoretical literature on reference pricing includes Mestre-Ferrandiz (2003), Brekke et al (2007), Miraldo (2009); empirical literature on reference pricing and substitution reforms includes Aronsson, Bergman, and Rudholm (2001), Pavcnik (2002), Bergman and Rudholm (2003), Buzzelli et al (2006), Puig-Junoy (2007), Kanavos et al (2008), Brekke et al (2009), Granlund (2010), Granlund and Rudholm (2011), Kaiser et al (2014). The survey of studies on the effect of the introduction of reference pricing policies concludes that reference pricing was generally associated with a decrease in the prices of the drugs subject to the policy (Galizzi, Ghislandi, and Miraldo, 2011). parallel traders, they found that competition from parallel imports reduced prices by 12-19%.…”

Diffusion of pharmaceuticals: cross-country evidence of anti-TNF drugs

“…4 ' 5 However, there are some recent exceptions. Jönsson et al (2008) o¤er a 3 We also control for time-invariant product-speci…c factors, such as the treatment e¤ects, side-e¤ects, administration form, that are likely to explain di¤erences in consumption across the anti-TNF brands, as well as time trends in consumption.…”

“…Jönsson et al (2008) o¤er a 3 We also control for time-invariant product-speci…c factors, such as the treatment e¤ects, side-e¤ects, administration form, that are likely to explain di¤erences in consumption across the anti-TNF brands, as well as time trends in consumption. 4 The empirical literature on cross-country di¤erences in the prices of pharmaceuticals is much larger, see e.g., Danzon (1999), Danzon and Chao (2000), Danzon and Furukawa (2003), and . 5 There are some studies on di¤usion of pharmaceuticals within countries, see e.g., Berndt et al (2003) and Chintagunta et al (2009). descriptive analysis of the sales of anti-TNF drugs in a wide set of countries (also outside Europe) for the period of 2000 to 2006.…”