Regulation of pharmaceutical prices: Evidence from a reference price reform in Denmark

TY - JOUR

T1 - Regulation of pharmaceutical prices

T2 - Evidence from a reference price reform in Denmark

AU - Kaiser, Ulrich

AU - Mendez, Susan J.

AU - Rønde, Thomas

AU - Ullrich, Hannes

PY - 2014/1/1

Y1 - 2014/1/1

N2 - Reference price systems for prescription drugs constitute widely adopted cost containment tools. Under these regimes, patients co-pay a fraction of the difference between a drug's pharmacy retail price and a reference price that is set by the government. Reference prices are either externally (based on drug prices in other countries) or internally (based on domestic drug prices) determined. We study the effects of a change from external to internal reference pricing in Denmark in 2005. We find that the reform led to substantial reductions in retail prices, reference prices and patient co-payments as well as to sizable decreases in overall producer revenues and health care expenditures. The reform induced consumers to substitute away from branded drugs for which we estimate strong preferences. The increase in consumer welfare due to the reform therefore depends on whether or not we take perceived quality differences into account in its calculation.

AB - Reference price systems for prescription drugs constitute widely adopted cost containment tools. Under these regimes, patients co-pay a fraction of the difference between a drug's pharmacy retail price and a reference price that is set by the government. Reference prices are either externally (based on drug prices in other countries) or internally (based on domestic drug prices) determined. We study the effects of a change from external to internal reference pricing in Denmark in 2005. We find that the reform led to substantial reductions in retail prices, reference prices and patient co-payments as well as to sizable decreases in overall producer revenues and health care expenditures. The reform induced consumers to substitute away from branded drugs for which we estimate strong preferences. The increase in consumer welfare due to the reform therefore depends on whether or not we take perceived quality differences into account in its calculation.

KW - Co-payments

KW - Consumer welfare

KW - Pharmaceutical markets

KW - Reference pricing

KW - Regulation

UR - http://www.scopus.com/inward/record.url?scp=84901421452&partnerID=8YFLogxK

U2 - 10.1016/j.jhealeco.2014.04.003

DO - 10.1016/j.jhealeco.2014.04.003

M3 - Journal article

C2 - 24879578

AN - SCOPUS:84901421452

SN - 0167-6296

VL - 36

SP - 174

EP - 187

JO - Journal of Health Economics

JF - Journal of Health Economics

IS - 1

ER -