TY - JOUR
T1 - Pharmaceutical pricing dynamics in an internal reference pricing system
T2 - Evidence from changing drugs’ reimbursements
AU - Costa, Eduardo
AU - Santos, Carolina
N1 - Funding Information:
This work was supported by Fundação para a Ciência e a Tecnologia [PhD studentship: BD128545/2017 and BD135299/2017].
Publisher Copyright:
© 2022, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.
PY - 2022/12/1
Y1 - 2022/12/1
N2 - Reference pricing systems for prescription drugs are usually implemented with the aim of curbing public expenditure with pharmaceuticals, induce drug substitution from branded to generic drugs, and enhance competition. In these systems, patients co-pay the difference between the drug’s pharmacy retail price and the health system reimbursement level. Relying on a detailed product-level panel dataset of prescription drugs sold in Portuguese retail pharmacies, from 2016 to 2019, we evaluate pharmaceutical firms’ pricing decisions for branded and generic drugs, as well as consumers’ reaction to price changes. In particular, we exploit the variation induced by a policy change, which decreased reference prices for 36% of the drug groups in our sample. Results from difference-in-differences analyses show that, despite the reference price decrease, affected firms increased their prices—particularly for off-patent branded products. Such reaction from firms resulted in an increase in the co-payment paid by patients. Such price effects caused a 17% decline on branded drugs’ consumption, with significant heterogeneity across therapeutics. Estimates suggest that NHS reimbursement savings were mainly achieved through higher co-payments paid by patients. Additionally, pharmaceutical firms’ reaction to the reference price decrease was contrary to what was expected, suggesting underlying competitive dynamics which should be considered prior to policy changes.
AB - Reference pricing systems for prescription drugs are usually implemented with the aim of curbing public expenditure with pharmaceuticals, induce drug substitution from branded to generic drugs, and enhance competition. In these systems, patients co-pay the difference between the drug’s pharmacy retail price and the health system reimbursement level. Relying on a detailed product-level panel dataset of prescription drugs sold in Portuguese retail pharmacies, from 2016 to 2019, we evaluate pharmaceutical firms’ pricing decisions for branded and generic drugs, as well as consumers’ reaction to price changes. In particular, we exploit the variation induced by a policy change, which decreased reference prices for 36% of the drug groups in our sample. Results from difference-in-differences analyses show that, despite the reference price decrease, affected firms increased their prices—particularly for off-patent branded products. Such reaction from firms resulted in an increase in the co-payment paid by patients. Such price effects caused a 17% decline on branded drugs’ consumption, with significant heterogeneity across therapeutics. Estimates suggest that NHS reimbursement savings were mainly achieved through higher co-payments paid by patients. Additionally, pharmaceutical firms’ reaction to the reference price decrease was contrary to what was expected, suggesting underlying competitive dynamics which should be considered prior to policy changes.
KW - Co-payments
KW - NHS reimbursements
KW - Prescription drugs
KW - Price elasticity
KW - Reference pricing
UR - http://www.scopus.com/inward/record.url?scp=85124938331&partnerID=8YFLogxK
U2 - 10.1007/s10198-022-01440-2
DO - 10.1007/s10198-022-01440-2
M3 - Article
AN - SCOPUS:85124938331
SN - 1618-7598
VL - 23
SP - 1497
EP - 1518
JO - European Journal Of Health Economics
JF - European Journal Of Health Economics
IS - 9
ER -