Cost-Sharing and Drug Pricing Strategies: Introducing Tiered Co-Payments in Reference Price Markets

TILEC Discussion Paper No. 2016-021

CentER Discussion Paper No. 2016-040

32 Pages Posted: 4 Oct 2016 Last revised: 17 Oct 2016

See all articles by Annika Herr

Annika Herr

Düsseldorf Institute for Competition Economics (DICE), Heinrich-Heine-Universität; Ruhr Graduate School in Economics; CINCH

Moritz Suppliet

Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Date Written: September 29, 2016

Abstract

Health insurances curb price insensitive behavior and moral hazard of insureds through different types of cost-sharing, such as tiered co-payments or reference pricing. This paper evaluates the effect of newly introduced price limits below which drugs are exempt from co-payments on the pricing strategies of drug manufacturers in reference price markets. We exploit quarterly data on all prescription drugs under reference pricing available in Germany from 2007 to 2010. To identify causal effects, we use instruments that proxy regulation intensity. A difference in differences approach exploits the fact that the exemption policy was introduced successively during this period. Our main results first show that the new policy led generic firms to decrease prices by 5 percent on average, while brand-name firms increase prices by 7 percent after the introduction. Second, sales increased for exempt products. Third, we find evidence that differentiated health insurance coverage (public versus private) explains the identified market segmentation.

Keywords: Pharmaceutical prices; Cost-sharing; Co-payments; Reference pricing; Regulation; Firm behavior; Health Insurance

JEL Classification: I18, L51, I11, L11

Suggested Citation

Herr, Annika and Suppliet, Moritz and Suppliet, Moritz, Cost-Sharing and Drug Pricing Strategies: Introducing Tiered Co-Payments in Reference Price Markets (September 29, 2016). TILEC Discussion Paper No. 2016-021, CentER Discussion Paper No. 2016-040, Available at SSRN: https://ssrn.com/abstract=2845293 or http://dx.doi.org/10.2139/ssrn.2845293

Annika Herr (Contact Author)

Düsseldorf Institute for Competition Economics (DICE), Heinrich-Heine-Universität ( email )

Universitaetsstrasse 1
Düsseldorf, 40225
Germany

Ruhr Graduate School in Economics

Germany

CINCH ( email )

Universitätsstraße 2
Essen, 45141
Germany

Moritz Suppliet

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

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