Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals

Annika Herr, Moritz Suppliet

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Health insurance companies curb price-insensitive behavior and the moral hazard of insureds by means of cost-sharing, such as tiered co-payments or reference pricing in drug markets. This paper evaluates the effect of price limits –below which drugs are exempt from co-payments– on prices and on demand. First, using a difference-in-differences estimation strategy, we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand-name drugs in the German reference price market. Second, estimating a nested-logit demand model, we show that consumers appreciate co-payment exempt drugs and calculate lower price elasticities for brand-name drugs than for generics. This explains the different price responses of brand-name and generic drugs and shows that price-related co-payment tiers are an effective tool to steer demand to low-priced drugs.
Original languageEnglish
Pages (from-to)19-29
JournalJournal of Health Economics
Volume56
Early online dateSep 2017
DOIs
Publication statusPublished - Dec 2017

Fingerprint

Pharmaceutical Preparations
Generic Drugs
Names
Logistic Models

Keywords

  • drug prices
  • cost-sharing
  • co-payments
  • reference pricing
  • regulation
  • firm behavior
  • health insurance
  • demand model
  • price elsaticity

Cite this

@article{8dd4d9d8cbcc4d4d9d948d2b8fac95c1,
title = "Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals",
abstract = "Health insurance companies curb price-insensitive behavior and the moral hazard of insureds by means of cost-sharing, such as tiered co-payments or reference pricing in drug markets. This paper evaluates the effect of price limits –below which drugs are exempt from co-payments– on prices and on demand. First, using a difference-in-differences estimation strategy, we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand-name drugs in the German reference price market. Second, estimating a nested-logit demand model, we show that consumers appreciate co-payment exempt drugs and calculate lower price elasticities for brand-name drugs than for generics. This explains the different price responses of brand-name and generic drugs and shows that price-related co-payment tiers are an effective tool to steer demand to low-priced drugs.",
keywords = "drug prices, cost-sharing, co-payments, reference pricing, regulation, firm behavior, health insurance, demand model, price elsaticity",
author = "Annika Herr and Moritz Suppliet",
year = "2017",
month = "12",
doi = "10.1016/j.jhealeco.2017.08.008",
language = "English",
volume = "56",
pages = "19--29",
journal = "Journal of Health Economics",
issn = "0167-6296",
publisher = "Elsevier Science BV",

}

Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals. / Herr, Annika; Suppliet, Moritz.

In: Journal of Health Economics, Vol. 56, 12.2017, p. 19-29.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Tiered co-payments, pricing, and demand in reference price markets for pharmaceuticals

AU - Herr, Annika

AU - Suppliet, Moritz

PY - 2017/12

Y1 - 2017/12

N2 - Health insurance companies curb price-insensitive behavior and the moral hazard of insureds by means of cost-sharing, such as tiered co-payments or reference pricing in drug markets. This paper evaluates the effect of price limits –below which drugs are exempt from co-payments– on prices and on demand. First, using a difference-in-differences estimation strategy, we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand-name drugs in the German reference price market. Second, estimating a nested-logit demand model, we show that consumers appreciate co-payment exempt drugs and calculate lower price elasticities for brand-name drugs than for generics. This explains the different price responses of brand-name and generic drugs and shows that price-related co-payment tiers are an effective tool to steer demand to low-priced drugs.

AB - Health insurance companies curb price-insensitive behavior and the moral hazard of insureds by means of cost-sharing, such as tiered co-payments or reference pricing in drug markets. This paper evaluates the effect of price limits –below which drugs are exempt from co-payments– on prices and on demand. First, using a difference-in-differences estimation strategy, we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand-name drugs in the German reference price market. Second, estimating a nested-logit demand model, we show that consumers appreciate co-payment exempt drugs and calculate lower price elasticities for brand-name drugs than for generics. This explains the different price responses of brand-name and generic drugs and shows that price-related co-payment tiers are an effective tool to steer demand to low-priced drugs.

KW - drug prices

KW - cost-sharing

KW - co-payments

KW - reference pricing

KW - regulation

KW - firm behavior

KW - health insurance

KW - demand model

KW - price elsaticity

U2 - 10.1016/j.jhealeco.2017.08.008

DO - 10.1016/j.jhealeco.2017.08.008

M3 - Article

VL - 56

SP - 19

EP - 29

JO - Journal of Health Economics

JF - Journal of Health Economics

SN - 0167-6296

ER -