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Sascha G. Wolf, Reference Pricing in:

Sascha G. Wolf

Pharmaceutical Expenditure in Germany, page 84 - 86

Future Development, Political Influence and Economic Impact

1. Edition 2009, ISBN print: 978-3-8329-4164-2, ISBN online: 978-3-8452-2005-5 https://doi.org/10.5771/9783845220055

Series: Neue Studien zur Politischen Ökonomie, vol. 6

Bibliographic information
84 4.6.2. Reference Pricing Considering RP (model 2) no single solution can be obtained because the results depend on ?, i.e. the weight of PRPG for determining the reference price. G’s maximization problem is: . (4.41) Hence, for each apportionment between = and >, ? rm G chooses a speci? c quality level ?RPG (table 4.1). Table 4.1: G’s Quality Dependent on Reference Price Setting Scheme. = > ?RPG = > ?RPG 0 1 0.67 0.6 0.4 0.41 0.1 0.9 0.58 0.7 0.3 0.39 0.2 0.8 0.52 0.8 0.2 0.38 0.3 0.7 0.48 0.9 0.1 0.37 0.4 0.6 0.45 1 0 0.35 0.5 0.5 0.43 As we can see, quality of the generic drug decreases when = increases. Thus, the more the reference price depends on PRPG , the more it is optimal for ? rm G to pursue a lowquality strategy and to compete via the price component. Diminishing quality of the generic drug would suggest increasing prices for the branded drug as well as decreasing prices for the generic version. However, ? gure 4.5 does not support this supposition. In fact, both PRPB and PRPG show a u-shaped development. Figure 4.5: PRPB and PRPG as a Function of ? and ? (from left to right the weight of ? increases and consequently, as we have just seen, ?RPG decreases). 0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 0 /1 0, 1/ 0, 9 0, 2 /0 ,8 0, 3/ 0, 7 0, 4/ 0, 6 0, 5/ 0, 5 0, 6 /0 ,4 0, 7/ 0, 3 0, 8/ 0, 2 0, 9/ 0, 1 1/ 0 Pr ic e s ? / ? Price B, RPS Price G, RPS Notes: ?RPB = 1. 85 This seeming contradiction is due to the fact that patients do not have to pay market prices, but only co-payments according to the reference price scheme. The out-ofpocket disbursements arise from the proportional co-payment rate of 10 % (k = 0.1) for the generic drug and from the sum of proportional co-payment and the distance between PRPB and PRP for the branded drug. Figure 4.6 shows the resulting out-of-pocket payments. Figure 4.6: Out-of-Pocket Payments and Reference Prices as a Function of ? and ?. 0 0,5 1 1,5 2 2,5 3 3,5 4 0/ 1 0.1/0. 9 0.2/0. 8 0.3/0. 7 0.4/0. 6 0.5/0. 5 0.6/0. 4 0.7/0. 3 0.8/0. 2 0.9/0. 1 1/ 0 Price s Out-Of-Pocket Payments for B Out-Of-Pocket Payments for G Reference Price ? / ? Notes: ?RP B = 1. In contrast to prices, out-of-pocket payments for drug B correspond to our supposition and increase consistently. When ?RPG is suf? ciently high, both ? rms face competition; this causes ? rm B to heighten co-payments only slightly (i.e. in the same time PRPB falls). But as soon as the quality of the generic drug falls below a speci? c level, the perceived difference in quality leads to an arti? cial separation of the market. Superior quality grants ? rm B market power and enables it to incrementally increase prices and out-of-pocket payments without suffering market share losses.77 Out-of-pocket payments for drug G shows the same shape as the price for drug G (PRPG ). They are affected by two counteracting factors: ? rstly, the decline in quality leads to a decline in the optimal price level; secondly, the raise in the ratio has an increasing effect on G’s prices. As soon as out-of-pocket payments for drug B is high enough, the second effect dominates and it becomes optimal for ? rm G to raise PRPG . Thus, in the end both PRPB and PRPG increase, although ?RPB remains constant and ?RPG even decreases. It can be stated that weighting = too strongly in the reference price scheme results in a serious lack of competition. 77 This result coincides with the “Generic Competition Paradox” (see FN 54). 86 4.6.3. Medical Savings Accounts Price development under MSAs is affected by two different kinds of patients: those that have already exceeded their MSA (their share is denoted by 1 – ?) have to pay proportional co-payments and thus give both ? rms the incentive for high prices. Contrary to that, people who are below their MSA limit (their share is denoted by ?) are highly price-sensitive because they are confronted with the whole price of the drugs. When ? = 0, the system is equivalent to simple coinsurance, but the higher the share of people who are faced with market prices, the more competition can be supposed. Therefore, it should be plausible that prices fall consistently as ? increases.78 The development of prices (? gure 4.7) coincides with this assumption. In comparison with price setting behaviour under RP and coinsurance, it is revealed that under an MSA regime prices are persistently lower – and are so without a deterioration of quality: ? does not in? uence the generic quality level. As in the coinsurance scenario, ?MSAG constantly equals tu . It can be stated that MSAs indeed increase cost-consciousness of consumers and execute competition pressure on both manufacturers. The fewer people who exceed their MSAs, the more competition arises and the more prices PMSAB and PMSAG converge on each other. Figure 4.7: Prices as a Function of =, > and ?. 0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 0, 0/ 1 0.1, 0.1/0. 9 0.2, 0.2/0. 8 0.3, 0.3/0. 7 0.4, 0.4/0. 6 0.5, 0.5/0. 5 0.6, 0.6/0. 4 0.7, 0.7/0. 3 0.8, 0.8/0. 2 0.9, 0.9/0. 1 1, 1/ 0 Price s Price B, MSA Price G, MSA Price B, RPS Price G, RPS Price B, Co- Payment Price G, Co- Payment ?, ? / ? Notes: ?B = 1. For comparison, PRPB and PRPG as a function of ? and ? as well as PB and PG at k = r.s are in grey curves. Prices in the coinsurance-scenario are independent on curves ?, ? and ? and thus remain constant. Although the control instruments highly in? uence ? rms’ price-setting behaviour, quantities are almost not affected. In all three scenarios, quantity of drug B remains constant: qB = qRPB = qMSAB = 0.5. Likewise, for drug G we obtain: qG = qMSAG = 0.37. Only 78 Quantities remain constant at QB = 0.5 and QG = 0.37.

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Zusammenfassung

Der Arzneimittelsektor der Gesetzlichen Krankenversicherung stand wiederholt im Fokus zahlreicher Gesundheitsreformen. Dennoch ist es bislang nicht gelungen, den Trend steigender Ausgaben nachhaltig zu bremsen. Die vorliegende Untersuchung leistet einen Beitrag dazu, die Ursachen dieser Entwicklung zu erklären und Lösungsansätze aufzuzeigen. Mittels Hauptkomponenten- und Cluster-Analyse wurden Gruppen von Arzneimitteln mit vergleichbaren Konsumeigenschaften gebildet. Jede Gruppe wurde auf den Einfluss der Altersabhängigkeit und des technologischen Fortschritts hin analysiert. Aufbauend auf diesen Ergebnissen wurde eine Prognose der zukünftigen Ausgabenentwicklung bis zum Jahr 2050 erstellt. Obwohl die Hauptkostenfaktoren exogen sind, steht der Gesetzgeber dem vorhergesagten ansteigenden Kostenpfad nicht hilflos gegenüber. Im Gegenteil: Anhand ökonometrischer Tests wird gezeigt, dass die Gesundheitspolitik in der Vergangenheit durch wahl- und klientelorientierte Interessendurchsetzung geprägt war. Mehr Effizienz in der Arzneimittelversorgung könnte durch die Einführung individueller Gesundheitssparkonten erzielt werden. Dies bestätigen die Resultate eines vertikal differenzierten Wettbewerbsmodells.