Published 02 January 2013

Re-regulation of the pharmacy market

– effects on flexibility, prices and costs per daily dose

The primary purpose of the study is to assess the effect of the reform on market prices, and not to estimate the effect of the reform on the total cost of generic drugs. Hence, the following results are based on regressions where prices are not weighted by sales in a given year.

The empirical analysis regarding compliance gives the following conclusions:

  • All studied measures show increased compliance due to the reforms.
  • The market share of the “most inexpensive medicinal product” (measure A) increased by 25 percentage points due to the reforms.
  • The market share of the “most inexpensive medicinal product”, after the exclusion of all legal reasons not to dispense the most inexpensive product, (measure D1) increased by 37 percentage points due to the reforms.
  • The market share of “most inexpensive medicinal product” using measure A equals 70 per cent after the reforms. The same number for measure D1 equals 84 per cent. Thus, in four out of five cases the “most inexpensive medicinal product” is dispensed according to the regulations.

The primary purpose of the study is to assess the effect of the reform on market prices, and not to estimate the effect of the reform on the total cost of generic drugs. Hence, the following results are based on regressions where prices are not weighted by sales in a given year. Results are summarized below:

  • When there are two products bidding to become the “most inexpensive medicinal product”, the market reforms have increased consumer prices (AUP) with on average eleven per cent for the “most inexpensive medicinal products”, and by ten per cent for other products.
  • When there are two products bidding to become the “most inexpensive medicinal product”, the market reforms have not changed pharmacy prices (AIP) to any large extent.
  • When there are an arbitrary number of products bidding to become the “most inexpensive medicinal product”, the market reforms have increased consumer prices (AUP) with on average 17 per cent for the “most inexpensive medicinal products”, and decreased the consumer price of other products with on average six per cent.
  • When there are an arbitrary number of products bidding to become the “most inexpensive medicinal product”, the market reforms have increased pharmacy prices (AIP) with on average eleven per cent for the “most inexpensive medicinal products”, and decreased them by approximately 25 per cent for other products.

The following results are based on regressions where the products have been weighted by their sales for 2008, meaning that the results convey how the total costs on the market for generics have been affected.

  • The cost per daily dose (in AUP, weighted by sales for 2008) has decreased by approximately ten per cent due to the market reforms.
  • The increased compliance as such has not compensated for the reinforced margin; instead the lowered costs per daily dose (in AUP) were caused by the fact that a large number of the brand name drug companies were induced to lower their prices in July 2009.
  • It is not certain whether the increased compliance that was brought about by the reregulation has led to lower costs. The explanation to the inconclusive result is that an increase in compliance appears to have resulted in fewer competing firms per exchange group.
  • The cost per daily dose (measured in AIP, weighted by sales for 2008) has decreased by approximately 30 per cent due to the market reforms. The fact that the reduction in AIP is greater than it is in AUP is explained by generikatian and by the fact that the fixed parts of the pharmacies’ remuneration cause a certain percental reduction in AIP to induce a smaller percental reduction in AUP.
  • The price reductions of brand name drugs in July 2009 have resulted in larger reductions, in terms of percent, in the cost per daily dose. This implies that the generic drug companies have lowered their prices by more than the brand name companies and/or that the price reductions of brand name drugs in July 2009 are correlated with increased market shares for cheaper products.
  • Sales have increased more or declined less for those compounds that have been affected by the price reductions of the brand name drugs in July 2009. However, the results do not support the hypothesis that total sales of drugs with generic alternatives have increased as a result of the market reforms.

Title
Re-regulation of the pharmacy market – effects on flexibility, prices and costs per daily dose

Serial number
WP/PM 2012:19

Reference number
2009/067

Download the report in SwedishPDF