Resource title

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

Resource image

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Resource description

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 reduces 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.

Resource author

Kurt R. Brekke, Astrid L. Grasdal, Tor Helge Holmås

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/26104

Resource license

Adapt according to the presented license agreement and reference the original author.