Cost-Sharing and Drug Pricing Strategies

Introducing Tiered Co-Payments in Reference Price Markets

Moritz Suppliet, Annika Herr

Research output: Working paperDiscussion paperOther research output

966 Downloads (Pure)

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 identifed market segmentation.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages32
Volume2016-021
Publication statusPublished - 29 Sep 2016

Publication series

NameTILEC Discussion Paper
Volume2016-021

Fingerprint

Copayments
Reference price
Pricing strategy
Cost sharing
Drugs
Health insurance
Pricing
Germany
Causal effect
Difference-in-differences
Prescription drugs
Brand names
Exemption
Moral hazard
Reference pricing
Market segmentation
Price limits

Keywords

  • pharmaceutical prices
  • cost-sharing
  • co-payments
  • reference pricing
  • regulation
  • firm behavior
  • health insurance

Cite this

Suppliet, M., & Herr, A. (2016). Cost-Sharing and Drug Pricing Strategies: Introducing Tiered Co-Payments in Reference Price Markets. (TILEC Discussion Paper; Vol. 2016-021). Tilburg: TILEC.
Suppliet, Moritz ; Herr, Annika. / Cost-Sharing and Drug Pricing Strategies : Introducing Tiered Co-Payments in Reference Price Markets. Tilburg : TILEC, 2016. (TILEC Discussion Paper).
@techreport{6430293bfde94f91ab353fc61de7c0f4,
title = "Cost-Sharing and Drug Pricing Strategies: Introducing Tiered Co-Payments in Reference Price Markets",
abstract = "Health insurances curb price insensitive behavior and moral hazard of insureds through different types of cost-sharing, such as tiered co-payments orreference pricing. This paper evaluates the effect of newly introduced price limits below which drugs are exempt from co-payments on the pricing strategiesof drug manufacturers in reference price markets. We exploit quarterly dataon all prescription drugs under reference pricing available in Germany from2007 to 2010. To identify causal effects, we use instruments that proxy regulation intensity. A difference-in-differences approach exploits the fact thatthe exemption policy was introduced successively during this period. Our mainresults first show that the new policy led generic firms to decrease prices by 5percent on average, while brand-name firms increase prices by 7 percent afterthe introduction. Second, sales increased for exempt products. Third, we findevidence that differentiated health insurance coverage (public versus private)explains the identifed market segmentation.",
keywords = "pharmaceutical prices, cost-sharing, co-payments, reference pricing, regulation, firm behavior, health insurance",
author = "Moritz Suppliet and Annika Herr",
year = "2016",
month = "9",
day = "29",
language = "English",
volume = "2016-021",
series = "TILEC Discussion Paper",
publisher = "TILEC",
type = "WorkingPaper",
institution = "TILEC",

}

Suppliet, M & Herr, A 2016 'Cost-Sharing and Drug Pricing Strategies: Introducing Tiered Co-Payments in Reference Price Markets' TILEC Discussion Paper, vol. 2016-021, TILEC, Tilburg.

Cost-Sharing and Drug Pricing Strategies : Introducing Tiered Co-Payments in Reference Price Markets. / Suppliet, Moritz; Herr, Annika.

Tilburg : TILEC, 2016. (TILEC Discussion Paper; Vol. 2016-021).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Cost-Sharing and Drug Pricing Strategies

T2 - Introducing Tiered Co-Payments in Reference Price Markets

AU - Suppliet, Moritz

AU - Herr, Annika

PY - 2016/9/29

Y1 - 2016/9/29

N2 - Health insurances curb price insensitive behavior and moral hazard of insureds through different types of cost-sharing, such as tiered co-payments orreference pricing. This paper evaluates the effect of newly introduced price limits below which drugs are exempt from co-payments on the pricing strategiesof drug manufacturers in reference price markets. We exploit quarterly dataon all prescription drugs under reference pricing available in Germany from2007 to 2010. To identify causal effects, we use instruments that proxy regulation intensity. A difference-in-differences approach exploits the fact thatthe exemption policy was introduced successively during this period. Our mainresults first show that the new policy led generic firms to decrease prices by 5percent on average, while brand-name firms increase prices by 7 percent afterthe introduction. Second, sales increased for exempt products. Third, we findevidence that differentiated health insurance coverage (public versus private)explains the identifed market segmentation.

AB - Health insurances curb price insensitive behavior and moral hazard of insureds through different types of cost-sharing, such as tiered co-payments orreference pricing. This paper evaluates the effect of newly introduced price limits below which drugs are exempt from co-payments on the pricing strategiesof drug manufacturers in reference price markets. We exploit quarterly dataon all prescription drugs under reference pricing available in Germany from2007 to 2010. To identify causal effects, we use instruments that proxy regulation intensity. A difference-in-differences approach exploits the fact thatthe exemption policy was introduced successively during this period. Our mainresults first show that the new policy led generic firms to decrease prices by 5percent on average, while brand-name firms increase prices by 7 percent afterthe introduction. Second, sales increased for exempt products. Third, we findevidence that differentiated health insurance coverage (public versus private)explains the identifed market segmentation.

KW - pharmaceutical prices

KW - cost-sharing

KW - co-payments

KW - reference pricing

KW - regulation

KW - firm behavior

KW - health insurance

M3 - Discussion paper

VL - 2016-021

T3 - TILEC Discussion Paper

BT - Cost-Sharing and Drug Pricing Strategies

PB - TILEC

CY - Tilburg

ER -

Suppliet M, Herr A. Cost-Sharing and Drug Pricing Strategies: Introducing Tiered Co-Payments in Reference Price Markets. Tilburg: TILEC. 2016 Sep 29. (TILEC Discussion Paper).