The Impact of Price-cap Regulations on Exit by Generic Pharmaceutical Firms

Modeling Tiered Pricing Frameworks: A Simulation Approach

OBJECTIVE

Drug plans take different approaches to determining reimbursement prices for generic drugs. One common approach is to set the maximum reimbursement price as a percentage of the price of the interchangeable branded drug. In many countries this percentage depends on the number of generic entrants, a model we call "tiered pricing." This paper seeks to enhance understanding of how to set the tiers.

METHODS

We construct a simple model of tiered pricing and set parameters to match evidence on generic drug costs and the distribution of revenues. Using simulation methods, we then assess different tier structures in terms of total surplus and average drug cost.

RESULTS

We find when tiers are bunched tightly together welfare outcomes are poor. Moreover, there are large welfare gains from increasing the number of tiers from one to two, and only small welfare gains from increasing the number of tiers beyond four.

CONCLUSIONS

The choice of tiers has substantial welfare and cost implications. While it is possible to refine the simulation analysis based on specific market characteristics, an optimal tier structure, such as the one we propose in the paper, should have at least two tiers.

Does price-cap regulation work for increasing access to contraceptives? Aggregate- and pharmacy-level evidence from Colombia

Price caps through international reference pricing are widely used worldwide but not so commonly in over-the-counter markets. We study the short-term effects of a price cap regulation for oral contraceptives in Colombia, a market dominated by the presence of several branded generics with multiple active ingredients. Most of the regulated products were fourth-generation contraceptives, and the Colombian health benefits plan only covers second-generation ones, resulting in a de facto over-the-counter market. Our aim is to establish whether the regulation triggered a competitive response within and across product categories, by price levels and regulatory status. The panel data analysis of quarterly level data for 52 drugs (and 79 drugs in an expanded sample without transactions for some quarters) reveals a massive expansion of transactions, for the directly regulated products that were formerly the most expensive, and for the indirectly regulated (i.e., a regulated ingredient) among those with an intermediate price. Although this price reduction could have led to a crowd out of the publicly provided contraceptives, we show that this is not the case. Since the information system cannot trace the final consumers' purchases, we complement our analysis with an audit study involving 213 pharmacies in Bogota. We find that the price reduction was effectively transmitted to the final consumers.

Pricing Problems in the Pharmaceutical Supply Chain with Mixed Channel: A Power Perspective

This paper builds Pharmaceutical Manufacturer Stackelberg, Pharmacy Stackelberg and Nash game models with and without price cap regulation. The optimal pricing, performance and social welfare are derived and compared in three different power structures to find out how price cap regulation and power structures affect the drug supply chain. More power over other supply chain members always allows the pharmaceutical manufacturer to obtain more profits. However, the pharmacy cannot always benefit from its dominant position in the market with changes in the wholesale price cap. Additionally, the balanced market structure may harm social welfare under certain conditions. Another interesting finding is that the restricted wholesale price cap deeply affects the financial performance and social welfare in the manufacturer-dominated and pharmacy-dominated markets. The research results can provide important management insights, which will be beneficial to the government to design smart price-limiting policies that take into account the power relationships of the supply chain.

The effects of pricing policy on the prices and supply of low-cost medicines in Shandong, China: evidence from an interrupted time series analysis

Background

In China, some medicines had a supply problem. In 2015, to address this problem, the Chinese government issued a policy to raise the price cap for some shorted low-cost medicines (LCMs). The objective was to assess the effects on medicine prices and supply of medicines from a medicine pricing policy reform point of view.

Methods

This study was conducted in Shandong, an eastern province of China with a population of 99.4 million. We collected procurement data of all (n = 1494) LCM medicines available between April 2014 and February 2017 from the web-based Provincial Drug Centralized Bidding Procurement System. This study used the Drug Price index and the average price to reveal the price change of LCMs and used the interrupted time series to evaluate the effects of LCM policy on medicine supply by measuring the change of monthly procurement volume, the number of products, and the average delivery time of LCMs.

Results

After the policy implementation in October 2015, the quarterly average price of all LCM products, especially traditional Chinese medicines, showed a sudden growth trend. Then after two-quarter implementation of policy, the price recovered to the same trend before policy intervention, which is consistent with the trend of the Drug price index. There were 466 of LCM products available in October 2015. After the policy intervention, the number of products available increased by 109.87% (n = 978) in February 2017, at a growth rate of 6.44% per month (Value = 30.02, P < 0.001). Besides after the intervention in October 2015, the monthly procurement volumes of LCMs increased rapidly, on average, at a rate of 28.93% per month (Value = 474,000, P < 0.001) for all LCMs. The average delivery time of LCMs kept on decreasing from 33.37 days to 10.69 days at a reduced rate of 3.63% (Value = − 1.21, P < 0.001) per month before the policy, while no significant changes were noted. Also, average monthly delivery time was stable at 9 days after the intervention.

Conclusions

The policy promoted the supply of low-cost medicines, which is beneficial for the Universal Health Coverage. However, future policies should focus on monitoring price change and reducing the delivery time of generic medicines.

Marketing and Pricing Strategies of Blockbuster Drugs in the South Korean Market: A 15-Year Retrospective Cohort Study for Choline Alfoscerate

INTRODUCTION

Understanding marketing strategies and price competition among manufacturers is essential to manage health care expenditures, particularly those related to blockbuster drugs.

OBJECTIVES

To assess marketing and pricing strategies of blockbuster drugs in South Korea.

METHODS

Baseline information on manufacturers who were granted marketing approval for choline alfoscerate in various forms was retrieved. Accumulation of manufacturers in the market was also identified, and manufacturers were categorized into first movers and latecomers based on their marketing time. Then, an event history analysis and a regression analysis were applied to estimate the duration of marketing and their price competition.

RESULTS

Currently, 109, 83, and 26 manufacturers produce choline alfoscerate in capsule, tablet, or syrup form, respectively, indicating that many manufacturers have marketed generics and the majority of the generics are categorized as latecomers. The size of the manufacturer was a significant factor in marketing new medicines, while the variable was not related to the marketing of modified drugs. Furthermore, price competition in the market was rare and only a few major firms initiated price competition.

CONCLUSION

The Korean market appears to be an example of perfect competition when we focus on the number of manufacturers. However, the market is near-monopolistic when examining the price of generic drugs. While product competition between different forms of drugs is effective in lowering price, product competition within the same form of a drug does not exist in the market.

Generic atorvastatin and rosuvastatin in the South Korean market: time of introduction in relation to manufacturer characteristics

Background: The competition for and market dynamics of generic medicines can be understood by analyzing manufacturers' behavior. In this study, we analyzed the various types of generic atorvastatin and rosuvastatin that were introduced onto the South Korean market from 2002 to 2018 and their corresponding manufacturers. Methods: Based on publicly available data, we selected drugs containing atorvastatin and rosuvastatin as active ingredients for the analysis. We calculated the time between the date of marketing approval for the first generic and that of the remaining generics. Then, we categorized manufacturers that marketed generics into first movers and latecomers. Results: We confirmed that many manufacturers have marketed generic drugs in South Korea and that manufacturers can be categorized as first movers and latecomers. Interestingly, latecomers account for a large portion of the manufacturers of generics, and they have entered the market steadily, even after the market matured with a number of manufacturers. Additionally, the characteristics of the manufacturers were closely related to manufacturers' behaviors in the market. Conclusions: The order-of-entry effect, which is commonly observed in other markets, is marginal in the South Korean market, and this phenomenon is mainly explained by the rare price competition among generic manufacturers.

The effect of the implementation of low price medicine policy on medicine price in China: A retrospective study

In an effort to relieve the pressure of drug shortages, the Chinese government implemented Low-price Medicines (LPM) policy to raise the price cap in July 2014. The purpose of this study is to examine the effect of the implementation of this policy on drug price in China. Price data of 491 LPM, including 218 low-price chemical medicines (LPCM) and 273 low-price traditional Chinese medicines (LPTCM), were collected from 699 hospitals. We used interrupted time series design to identify the variation of monthly Laspeyres Indexes (LI) and Paasche Indexes (PI) for LPM, LPCM, and LPTCM. The result demonstrated that although LPM expenditures increased, the proportion of LPM expenditures accounting for all medicine expenditures fell from 3.6% to 3.2%. After the implementation of LPM policy, there was a significant increasing trend in LPM-PI, LPCM-PI, and LPTCM-PI. The trend in LPM-LI and LPCM-LI was found from descending to rising. However, for LPTCM, the trend in the LI remained to decrease after the policy implementation. Despite the LPM policy had an increasing impact on the LPM drug price, the proportion of LPM expenditures accounting for all medicine expenditures did not increase. More efforts are needed in the future to promote the rational drug use in China.

The impact of price-cap regulations on market entry by generic pharmaceutical firms

BACKGROUND

In 1998, the province of Ontario, Canada implemented price-cap '70/90' regulations: the first generic must be priced at ≤70% of the associated brand-name price and subsequent generics must be priced at ≤90% of the first generics' price. The price-cap was further lowered to 50% in 2006 and 25% in 2010 for all generic drugs regardless of the first or subsequent generic entrants. This study assessed the impact of such price-cap regulations on market entry by generic firms using the formulary database from 9 provinces (January 2004-March 2013).

METHODS

A logistic regression was estimated to compare the probability of entry during the three policy periods in Ontario ('70/90', '25', versus '50'). Since different price-caps were subsequently introduced in other provinces, Alberta, British Columbia, New Brunswick and Saskatchewan, difference-in-differences was used to compare market entry.

RESULTS

In Ontario, compared with the period '50', generic firms were 76% and 63% less likely to enter markets in the periods '25' and '70/90', respectively. The difference-in-differences showed that the entry probability decreased the most in Ontario during the '25' period from the '50' period.

CONCLUSION

Lowering the price-cap level to 25% leads to a significantly lower probability of market entry by generic firms.