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Do higher-priced generic medicines enjoy a competitive advantage under reference pricing?
1Department of Economics and Business, Universitat Pompeu Fabra, Barcelona, Spain. jaume.puig@upf.edu
Applied Health Economics and Health Policy
|August 21, 2012
Summary
Generic drug pricing competition involves significant undisclosed discounts to pharmacies. Higher-priced generics may gain an advantage due to larger discounts, distorting the market under reference pricing systems.
Area of Science:
- Health Economics
- Pharmaceutical Policy
- Market Competition
Background:
- Generic reference pricing systems incentivize competition through undisclosed discounts to pharmacies.
- These discounts aim to reduce acquisition costs and influence generic dispensing preferences.
Purpose of the Study:
- To investigate if higher consumer prices for generic medicines confer a competitive advantage within reference pricing frameworks.
- To test the hypothesis that elevated generic prices may correlate with increased market share or preferential dispensing.
Main Methods:
- Analysis of real transaction prices for 179 generic medicines in Spain.
- Calculation of discount rates based on acquisition versus reimbursed costs for pharmacies.
- Empirical testing of hypotheses related to competitor numbers and price reduction relative to brand drugs.
Main Results:
- An average discount rate of 39.3% was observed.
- Discount magnitude positively correlates with the number of market competitors.
- Larger discounts are associated with generics having a higher price ratio compared to the pre-entry brand drug price.
Conclusions:
- Intense price competition among generic firms manifests as substantial undisclosed discounts.
- Reference pricing systems can create market distortions, favoring higher-priced generics.
- The study highlights the complex interplay between pricing, competition, and dispensing behavior in generic drug markets.
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