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Room: Congress Hall A
Time: Fri 08:30 AM-09:45 AM

The effects of reference pricing in pharmaceutical markets

Chair: Marisa Miraldo (Imperial College)

Session Description

Several countries have introduced reference pricing to contain the growth of pharmaceutical expenditures. Reference pricing is a reimbursement scheme in which a reference price defines the maximum reimbursement for a group of pharmaceuticals with similar effectiveness. If a consumer is willing to purchase a pharmaceutical which is more expensive than the reference price, the consumer is responsible for paying the difference between the retail price and the reference price. Theoretically, reference pricing increases price-sensitivity of a pharmaceutical market, because the policy induces consumers to switch from expensive pharmaceutical treatments to low-priced alternatives. Because of such consumer incentives, it is expected that reference pricing will also intensify price competition and reduce pharmaceutical expenditures.
In this organized session we aim at discussing the evidence on the effects of reference pricing by bringing together representatives from the academia (presenters), policy makers, regulatory and industry sectors stakeholders (to be invited as discussants if submission is successful). The session will be organized around three blocks. In the first we will present international evidence on the effects of this policy, ii) on the second we will present recent evidence on the effect of this policy in two European countries (one with an established history of reference pricing and another where this policy has just been implemented) iii) a final block will present an analytical framework for the study of price and expenditure effects of reference pricing and some experimental evidence on its role as a coordination device in pricing strategies.
The first contribution examines price and expenditure effects of reference pricing by reviewing empirical and theoretical literature on price and expenditure effects reference pricing.
The second contribution uses data from Finnish pharmaceutical markets to estimate both own-price and cross-price elasticities for branded and generic versions of simvastatins, lovastatins and fluvastatins. Demand elasticities combined with the price effects obtained from the literature review are then used to predict the change in pharmaceutical expenditures induced by the introduction (April 1, 2009) of the reference price policy in Finland.
For international comparisons, the third contribution tests for the impact of generic reference price on demand reallocation to products still under patent protection and its effect on prices for the Italian context. Evidence for the Italian health sector is put forward to allow a discussion on the extent to which reference pricing effects are country specific or can be generalized across countries.
Finally, this discussion will be fed with insights from a last contribution that provides an analytical framework for the analysis of reference pricing effects and experimental evidence on how reference pricing can serve as a coordination device for firms’ pricing strategies.

Session Organizer: Marisa Miraldo (Imperial College London) and Ismo Linnosmaa (University of Eastern Finland)

Presentations

1. Reference pricing as a price coordination device: An experimental test

   Presenter: Matteo Maria Galizzi (Queen Mary University of London)

2. The impact of reference pricing for drugs in Italy

   Presenter: Claudio Jommi (Bocconi University)

3. Demand elasticities and effectiveness of pharmaceutical policies

   Presenter: Joni Hokkanen (Research Center for Social Economics)

4. Effects of Reference Pricing in Pharmaceutical Markets: a Review

   Presenter: Simone Ghislandi (Bocconi University)