The Impact of Generic Entry of Pharmaceuticals in Australia

In this article, we estimate the initial and temporal impacts of generic entry on benchmark drug prices as reimbursed through the Pharmaceutical Benefits Scheme of Australia and the degree to which further generic competition affects these prices under the current regulatory framework.

We construct a panel data set consisting of 781 Pharmaceutical Benefits Scheme listed drugs over a 95-month time period and use fixed-effect regressions. The dynamic price effects of generic competition are investigated by implementing panel methods.

Our results suggest that generic entry into the Australian pharmaceutical market causes significant initial price reductions of approximately 31% and that successive generic entrants also act to further reduce drug prices. Through subgroup analyses, we identify that the effect of generic competition varies significantly according to the drug's therapeutic group and mode of drug administration and the dynamic analysis indicates that generic entry results in continuous price reductions even after large initial drops.

Generic competition reduces reimbursed drug prices in Australia to a greater extent than previous research has identified, although the average price effects can vary significantly depending on a drug's therapeutic group or mode of drug administration. Prices generally continue to fall significantly over time under the price disclosure mechanism.