IDEAS home Printed from https://ideas.repec.org/a/spr/aphecp/v10y2012i6p441-451.html
   My bibliography  Save this article

Do Higher-Priced Generic Medicines Enjoy a Competitive Advantage Under Reference Pricing?

Author

Listed:
  • Jaume Puig-Junoy

Abstract

Background: In many countries with generic reference pricing, generic producers and distributors compete by means of undisclosed discounts offered to pharmacies in order to reduce acquisition costs and to induce them to dispense their generic to patients in preference over others. Objective: The objective of this article is to test the hypothesis that under prevailing reference pricing systems for generic medicines, those medicines sold at a higher consumer price may enjoy a competitive advantage. Method: Real transaction prices for 179 generic medicines acquired by pharmacies in Spain have been used to calculate the discount rate on acquisition versus reimbursed costs to pharmacies. Two empirical hypotheses are tested: the discount rate at which pharmacies acquire generic medicines is higher for those pharmaceutical presentations for which there are more generic competitors; and, the discount rate at which pharmacies acquire generic medicines is higher for those pharmaceutical forms for which the consumer price has declined less in relation to the consumer price of the brand drug before generic entry (higher-priced generic medicines). Results: An average discount rate of 39.3% on acquisition versus reimbursed costs to pharmacies has been observed. The magnitude of the discount positively depends on the number of competitors in the market. The higher the ratio of the consumer price of the generic to that of the brand drug prior to generic entry (i.e. the smaller the price reduction of the generic in relation to the brand drug), the larger the discount rate. Conclusions: Under reference pricing there is intense price competition among generic firms in the form of unusually high discounts to pharmacies on official ex-factory prices reimbursed to pharmacies. However, this effect is highly distorting because it favours those medicines with a higher relative price in relation to the brand price before generic entry. Copyright Springer International Publishing AG 2012

Suggested Citation

  • Jaume Puig-Junoy, 2012. "Do Higher-Priced Generic Medicines Enjoy a Competitive Advantage Under Reference Pricing?," Applied Health Economics and Health Policy, Springer, vol. 10(6), pages 441-451, November.
  • Handle: RePEc:spr:aphecp:v:10:y:2012:i:6:p:441-451
    DOI: 10.1007/BF03261878
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/BF03261878
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/BF03261878?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lexchin, Joel, 2009. "Pricing of multiple dosage prescription medications: An analysis of the Ontario Drug Benefit Formulary," Health Policy, Elsevier, vol. 91(2), pages 142-147, July.
    2. Lopez-Casasnovas, Guillem & Puig-Junoy, Jaume, 2000. "Review of the literature on reference pricing," Health Policy, Elsevier, vol. 54(2), pages 87-123, November.
    3. Patricia M. Danzon & Michael F. Furukawa, 2011. "Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets," NBER Working Papers 17226, National Bureau of Economic Research, Inc.
    4. Panos Kanavos & Joan Costa-Font & Elizabeth Seeley, 2008. "Competition in off-patent drug markets: Issues, regulation and evidence [‘Substitution laws, insurance coverage, and generic drug use’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 23(55), pages 500-544.
    5. Fernando Antoñanzas & Juan Oliva & Mariola Pinillos & Carmelo Juàrez, 2007. "Economic aspects of the new Spanish laws on pharmaceutical preparations," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 8(3), pages 297-300, September.
    6. Puig-Junoy, Jaume & Moreno-Torres, Iván, 2010. "Do generic firms and the Spanish public purchaser respond to consumer price differences of generics under reference pricing?," Health Policy, Elsevier, vol. 98(2-3), pages 186-194, December.
    7. David Reiffen & Michael R. Ward, 2005. "Generic Drug Industry Dynamics," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 37-49, February.
    8. Iván Moreno-Torres & Jaume Puig-Junoy & Joan-Ramon Borrell, 2009. "Generic Entry into the Regulated Spanish Pharmaceutical Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 34(4), pages 373-388, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ivan Moreno-Torres, 2011. "What if there was a stronger pharmaceutical price competition in Spain? When regulation has a similar effect to collusion," Working Papers XREAP2011-02, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
    2. Ivan Moreno-Torres, 2011. "Generic drugs in Spain: price competition vs. moral hazard," Working Papers XREAP2011-04, Xarxa de Referència en Economia Aplicada (XREAP), revised May 2011.
    3. Katharina Elisabeth Fischer & Tom Stargardt, 2016. "The diffusion of generics after patent expiry in Germany," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(8), pages 1027-1040, November.
    4. Victoria Serra-Sastre & Simona Bianchi & Jorge Mestre-Ferrandiz & Phill O’Neill, 2021. "Does NICE influence the adoption and uptake of generics in the UK?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(2), pages 229-242, March.
    5. Roger Feldman & Félix Lobo, 2013. "Competition in prescription drug markets: the roles of trademarks, advertising, and generic names," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(4), pages 667-675, August.
    6. Serra-Sastre, Victoria & Bianchi, Simona & Mestre-Ferrandiz, Jorge & O’Neill, Phill, 2021. "Does NICE influence the adoption and uptake of generics in the UK?," LSE Research Online Documents on Economics 113639, London School of Economics and Political Science, LSE Library.
    7. Herr, A. & Suppliet, M., 2011. "Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 11/18, HEDG, c/o Department of Economics, University of York.
    8. Patricia M. Danzon & Michael F. Furukawa, 2011. "Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets," NBER Working Papers 17226, National Bureau of Economic Research, Inc.
    9. Puig-Junoy, Jaume & Moreno-Torres, Iván, 2010. "Do generic firms and the Spanish public purchaser respond to consumer price differences of generics under reference pricing?," Health Policy, Elsevier, vol. 98(2-3), pages 186-194, December.
    10. Costa-Font, Joan & McGuire, Alistair & Varol, Nebibe, 2014. "Price regulation and relative delays in generic drug adoption," Journal of Health Economics, Elsevier, vol. 38(C), pages 1-9.
    11. Bence Kovács & Miklós Darida & Judit Simon, 2021. "Drugs Becoming Generics—The Impact of Genericization on the Market Performance of Antihypertensive Active Pharmaceutical Ingredients," IJERPH, MDPI, vol. 18(18), pages 1-20, September.
    12. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484, National Bureau of Economic Research, Inc.
    13. Joan Costa-i-Font & Alistair McGuire & Nebibe Varol, 2011. "Does Pharmaceutical Price Regulation Affect the Adoption of Generic Competition? Evidence from the OECD, 1999-2008," CESifo Working Paper Series 3441, CESifo.
    14. Kaiser, Ulrich & Mendez, Susan J. & Rønde, Thomas & Ullrich, Hannes, 2014. "Regulation of pharmaceutical prices: Evidence from a reference price reform in Denmark," Journal of Health Economics, Elsevier, vol. 36(C), pages 174-187.
    15. Melissa Newham & Jo Seldeslachts & Albert Banal-Estanol, 2018. "Common ownership and market entry: Evidence from the pharmaceutical industry," Working Papers of Department of Management, Strategy and Innovation, Leuven 623896, KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven.
    16. Berndt, Ernst R. & Dubois, Pierre, 2012. "Impacts of Patent Expiry and Regulatory Policies on Daily Cost of Pharmaceutical Treatments: OECD Countries, 2004-2010," IDEI Working Papers 702, Institut d'Économie Industrielle (IDEI), Toulouse.
    17. Sotiris Vandoros, 2014. "Therapeutic Substitution Post‐Patent Expiry: The Cases Of Ace Inhibitors And Proton Pump Inhibitors," Health Economics, John Wiley & Sons, Ltd., vol. 23(5), pages 621-630, May.
    18. Mikael Linden, 2017. "Price variability, generic substitution, market size and multimarket contacts in the Finnish beta blocker market," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(2), pages 161-174, June.
    19. Hokkanen, Joni & Kangasharju, Aki & Linnosmaa, Ismo & Valtonen, Hannu, 2012. "Generic substitution policy, prices and market structure: evidence from a quasi-experiment in Finland," Working Papers 35, VATT Institute for Economic Research.
    20. Patricia M. Danzon & Andrew W. Mulcahy & Adrian K. Towse, 2015. "Pharmaceutical Pricing in Emerging Markets: Effects of Income, Competition, and Procurement," Health Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 238-252, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:aphecp:v:10:y:2012:i:6:p:441-451. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.