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Do Pharmaceutical Prices Respond to Insurance?

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  • Nina Pavcnik

Abstract

Despite the importance of patient insurance in the market for prescription pharmaceuticals, little is known about the impact of insurance on the pricing behavior of pharmaceutical firms. This paper examines the link between insurance and pricing using a unique policy experiment from Germany. Starting in 1989, a maximum reimbursement for a given medicine replaced a flat prescription fee. This change in insurance reimbursement exposes the patient to the price of a prescribed product. Using a product level panel dataset covering several therapeutic categories before and after the change in insurance reimbursement, I find that producers significantly decrease prices after the change in insurance. Price declines are most pronounced for brand name products. Moreover, branded products that face more generic competitors reduce prices more.

Suggested Citation

  • Nina Pavcnik, 2000. "Do Pharmaceutical Prices Respond to Insurance?," NBER Working Papers 7865, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7865
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    References listed on IDEAS

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    1. Sara Ellison Fisher & Iain Cockburn & Zvi Griliches & Jerry Hausman, 1997. "Characteristics of Demand for Pharmaceutical Products: An Examination of Four Cephalosporins," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 426-446, Autumn.
    2. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-277, June.
    3. Judith K. Hellerstein, 1998. "The Importance of the Physician in the Generic Versus Trade-Name Prescription Decision," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 108-136, Spring.
    4. Zweifel, Peter & Crivelli, Luca, 1996. "Price Regulation of Drugs: Lessons from Germany," Journal of Regulatory Economics, Springer, vol. 10(3), pages 257-273, November.
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    Cited by:

    1. Puig-Junoy, Jaume, 2004. "Incentives and pharmaceutical reimbursement reforms in Spain," Health Policy, Elsevier, vol. 67(2), pages 149-165, February.
    2. Jaume Puig, 2003. "Incentives and pharmaceutical reimbursement reforms in Spain," Economics Working Papers 679, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Jaume Puig, 2003. "Incentives and pharmaceutical reimbursement reforms in Spain," Working Papers, Research Center on Health and Economics 679, Department of Economics and Business, Universitat Pompeu Fabra.
    4. Nell, Martin & Richter, Andreas & Schiller, Jörg, 2009. "When prices hardly matter: Incomplete insurance contracts and markets for repair goods," European Economic Review, Elsevier, vol. 53(3), pages 343-354, April.
    5. Helga De Doncker, 2006. "R&D in the Belgian Pharmaceutical Sector," Working Paper Document 106, National Bank of Belgium.
    6. Bhattacharya, Jayanta & Vogt, William B, 2003. "A Simple Model of Pharmaceutical Price Dynamics," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 599-626, October.
    7. Rifat A. Atun & Ipek Gurol-Urganci & Desmond Sheridan, 2007. "Uptake And Diffusion Of Pharmaceutical Innovations In Health Systems," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 11(02), pages 299-321.

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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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