Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark

Posted by D. Daniel Sokol

Ulrich Kaiser (University of Zurich), Susan J. Mendez (University of Zurich), and Thomas Rønde (Copenhagen Business School) address Regulation of Pharmaceutical Prices: Evidence from a Reference Price Reform in Denmark.

ABSTRACT: On April 1, 2005, Denmark changed the way references prices, a main determinant of reimbursements for pharmaceutical purchases, are calculated. The previous reference prices, which were based on average EU prices, were substituted to minimum domestic prices. Novel to the literature, we estimate the joint effects of this reform on prices and quantities. Prices decreased more than 26 percent due to the reform, which reduced patient and government expenditures by 3.0 percent and 5.6 percent, respectively, and producer revenues by 5.0 percent. The prices of expensive products decreased more than their cheaper counterparts, resulting in large differences in patient benefits from the reform.