Reference Pricing of Pharmaceuticals for Medicare: Evidence from Germany, the Netherlands and New Zealand

48 Pages Posted: 5 Oct 2003 Last revised: 7 May 2021

See all articles by Patricia M. Danzon

Patricia M. Danzon

University of Pennsylvania - The Wharton School

Jonathan Ketcham

Arizona State University (ASU) - Marketing Department

Date Written: October 2003

Abstract

This paper describes three prototypical systems of therapeutic reference pricing (RP) for pharmaceuticals -- Germany, the Netherlands, and New Zealand -- and examines their effects on the availability of new drugs, reimbursement levels, manufacturer prices and out-of-pocket surcharges to patients. RP for pharmaceuticals is not simply analogous to a defined contribution approach to subsidizing insurance coverage. Although a major purpose of RP is to stimulate competition, theory suggests that this is unlikely and this is confirmed by the empirical evidence. Other effects of RP differ across countries in predictable ways, reflecting each country's system design and other cost control policies. New Zealand's RP system has reduced reimbursement and limited the availability of new drugs, particularly more expensive drugs. Compared to these three countries, if RP were applied in the US, it would likely have a more negative effect on prices of on-patent products, due to the more competitive US generic market, and a more negative effect on R&D and on the future supply of new drugs, due to the much larger US share of global pharmaceutical sales.

Suggested Citation

Danzon, Patricia M. and Ketcham, Jonathan D., Reference Pricing of Pharmaceuticals for Medicare: Evidence from Germany, the Netherlands and New Zealand (October 2003). NBER Working Paper No. w10007, Available at SSRN: https://ssrn.com/abstract=453801

Patricia M. Danzon (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6367
United States

Jonathan D. Ketcham

Arizona State University (ASU) - Marketing Department ( email )

Tempe, AZ 85287-4106
United States
4809655507 (Phone)

HOME PAGE: http://wpcarey.asu.edu/directory/people/profile.cfm?person=2179827

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