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Competition in off-patent drug markets: issues, regulation and evidence

Kanavos, Panos, Costa-i-Font, Joan and Seeley, Elizabeth (2008) Competition in off-patent drug markets: issues, regulation and evidence. Economic Policy, 23 (55). pp. 499-544. ISSN 0266-4658

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Abstract

In recent years health insurers have placed a great deal of emphasis on the ability of generic medicines to deliver significant savings to overstretched health care budgets due to their lower cost and potential for a more efficient resource allocation. In this paper we study market developments after patent expiry, whether health insurance captures the financial benefits from cheaper generics, and whether regulation and product differentiation, among others, have any power in explaining originator and generic price movements, generic entry and diffusion. We find that health insurance does not capitalize fully or fast enough on the cost advantage of generic medicines, either because generic policies do not encourage their fast uptake, or because generic drug prices are high and frequently tied, directly or indirectly, to originator drug prices. We also find that reference pricing, a particular form of reimbursement regulation, encourages generic entry and reduces generic prices but only marginally. Finally, in generic markets characterized by homogeneous products, we find evidence of product differentiation which is impacting prices upwards rather than downwards. If health insurance is to benefit fully from generic medicines, it ought to encourage faster uptake and price competition, and discourage price-fixing regulation that ties generic prices to those of originator brands.

Item Type: Article
Official URL: http://www.blackwell-synergy.com/loi/ECOP
Additional Information: © 2008 Blackwell Publishing
Library of Congress subject classification: R Medicine > RM Therapeutics. Pharmacology
Sets: Departments > European Institute
Collections > Economists Online
Research centres and groups > LSE Health
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 18 Jun 2008 15:30
URL: http://eprints.lse.ac.uk/5737/

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