The Effects of Reference Pricing on Ex-factory Prices of Rx Drugs in Germany – A Panel Data Approach

Boris Augurzky (), Silja Göhlmann, Stefan Gress and Jürgen Wasem

No 46, RWI Discussion Papers from Rheinisch-Westfälisches Institut für Wirtschaftsforschung

Abstract: This paper examines effects of reference pricing for prescription drugs in German social health insurance based on econometric panel data methods. We analyze the effect on ex-factory prices. Moreover, we investigate whether manufacturers adapt prices of their products not subject to reference pricing as a consequence of changes in reference prices of their products subject to reference pricing.We use a large panel data set of nearly all German prescription drugs on a monthly basis between October 1994 and July 2005. Altogether, the data comprise almost 4 million observations. They provide information on ex-factory prices, reference prices, manufacturers, type of prescription drug, and market entries and exits. Our results show that there is no full price adjustment:A 1%-change in reference prices leads to a 0.3%-change in market prices. Price adjustment, however, is fast, it mostly happens in the first month. Furthermore, the first introduction of a reference price reduces market prices of the affected products by approximately 14%. Finally, we observe a significant time effect which is positive in the market without reference prices and negative in that with reference price.

Keywords: Price elasticity; temporal development; fixed effects model (search for similar items in EconPapers)
JEL-codes: I11 I18 (search for similar items in EconPapers)
Date: 2006-08
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