NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Pharmaceutical Prices Respond to Insurance?

Nina Pavcnik

NBER Working Paper No. 7865
Issued in August 2000
NBER Program(s):   HC   PR   PE

Despite the importance of patient insurance in the market for prescription pharmaceuticals, little is known about the impact of insurance on the pricing behavior of pharmaceutical firms. This paper examines the link between insurance and pricing using a unique policy experiment from Germany. Starting in 1989, a maximum reimbursement for a given medicine replaced a flat prescription fee. This change in insurance reimbursement exposes the patient to the price of a prescribed product. Using a product level panel dataset covering several therapeutic categories before and after the change in insurance reimbursement, I find that producers significantly decrease prices after the change in insurance. Price declines are most pronounced for brand name products. Moreover, branded products that face more generic competitors reduce prices more.

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Document Object Identifier (DOI): 10.3386/w7865

Published: Pavcnik, Nina. "Do Pharmaceutical Prices Respond To Potential Patient Out-Of-Pocket Expenses," Rand Journal of Economics, 2002, v33(3,Autumn), 469-487.

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