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Creative compliance in pharmaceutical markets: the case of profit controls

Bradley, James and Vandoros, Sotiris (2012) Creative compliance in pharmaceutical markets: the case of profit controls. Expert Review of Pharmacoeconomics and Outcomes Research, 12 (1). pp. 31-38. ISSN 1473-7167

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Abstract

This article discusses the issue of creative compliance in pharmaceutical markets. In particular, we explore the case of profit controls in the UK as an indirect way of regulating prices of in-patent originators. We study creative compliance in the presence of profit controls, rather than price controls or the Pharmaceutical Price Regulation Scheme in general. We use lessons from the accounting literature to explain firm behavior and reveal potential weaknesses in profit control regulation and use data to show changes in trends following the introduction of this policy. We demonstrate that in the presence of profit controls there is an incentive for producers to increase costs (leading to inefficiencies) or to inflate reported costs. We find some evidence that the behavior of pharmaceutical firms in the UK may have changed as a result of the introduction of profit controls. Although the evidence is in line with what we would expect to occur as a result of creative compliance, establishing a concrete causal relationship between such a pricing policy and costs is not possible. As institutions or organizations look to achieve legitimacy for their actions, they will use the tools they have, whether accounting or regulatory, to best represent themselves.

Item Type: Article
Official URL: http://www.expert-reviews.com/toc/erp/12/1
Additional Information: © 2012 Expert Review Ltd.
Library of Congress subject classification: R Medicine > RA Public aspects of medicine
R Medicine > RS Pharmacy and materia medica
Sets: Research centres and groups > LSE Health
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 31 Jan 2012 09:47
URL: http://eprints.lse.ac.uk/41733/

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