Pricing, Consumption and Competition in Pharmaceutical Drugs

Reference price regimes for prescription drugs are usually implemented with the aim of curbing public expenditure with pharmaceuticals, induce drug substitution from branded to generics drugs and enhance competition. In these systems, patients co-pay the difference between the drug's pharmacy retail price and the reimbursement level. Relying on a detailed product-level panel data set of prescription drugs sold in Portuguese retail pharmacies, from 2016 to 2019, we evaluate the impact of a policy change in the way reference prices are computed, affecting 36% of the equivalent-drug groups. We analyse the impact of such change on pricing strategies of pharmaceutical companies and on consumption.Results of a differences-in-differences analysis show that branded products (without patent protection) affected by the policy change increased their prices. The price paid by patients increased for both branded and generic drugs. We found evidence of a 15% decline on branded drugs consumption, with significant heterogeneity across regions and therapeutics. Evidence was found of increased competition in the groups affected by the policy change, through higher market entries. Results suggest that NHS co-payments savings were achieved through higher out-of-pocket payments paid by patients, raising potential equity concerns