Competition and Pharmaceuticals - Aidan Hollis - 2014 OECD Global Forum on Competition
Upcoming SlideShare
Loading in...5
×
 

Like this? Share it with your network

Share

Competition and Pharmaceuticals - Aidan Hollis - 2014 OECD Global Forum on Competition

on

  • 560 views

This presentation by Aidan Hollis was made at the 2014 Global Forum on Competition (27-28 February) during the session on competition issues in the distribution of pharmaceuticals. Find out more at ...

This presentation by Aidan Hollis was made at the 2014 Global Forum on Competition (27-28 February) during the session on competition issues in the distribution of pharmaceuticals. Find out more at http://www.oecd.org/competition/globalforum

Statistics

Views

Total Views
560
Views on SlideShare
551
Embed Views
9

Actions

Likes
1
Downloads
34
Comments
0

1 Embed 9

https://twitter.com 9

Accessibility

Categories

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Competition and Pharmaceuticals - Aidan Hollis - 2014 OECD Global Forum on Competition Presentation Transcript

  • 1. Competition issues in the distribution of pharmaceuticals Aidan Hollis Department of Economics University of Calgary
  • 2. Overview • Pharmacies exercise extraordinary market power when consumers are insured. This leads to high retail mark-ups and excessive numbers of pharmacies competing over quality. • Insurers in response try to control mark-ups using a variety of strategies. • Competition policy should be sensitive to the nature of these interactions.
  • 3. Pharmacy market power • In markets with insured consumers, pharmacies exercise substantial market power because consumers are insensitive to price. • With free entry and no price sensitivity, competition for the consumer will result in – – – – Excessive numbers of pharmacies High service levels Small volumes per pharmacy High unit costs
  • 4. Responses to pharmacy market power • The outcome – many small pharmacies with high costs and high service levels – may be competitive, but not efficient. • Insurers, in response, use various tools to limit prices reimbursed. – They limit reimbursement of dispensing fees and mark-ups charged by pharmacies – They attempt to limit the reimbursable component of the price of the drug
  • 5. Limiting reimbursement • Patented drugs: the usual tools are costeffectiveness analysis and price-referencing • Since generic drugs are homogeneous goods, prices should reflect the cost of production. • But pharmacies don’t have to pass on low wholesale prices because they have market power. – The insurer doesn’t observe true wholesale prices and so doesn’t benefit from manufacturer competition • So how to control pricing?
  • 6. Solutions for generic pricing • Incomplete insurance
  • 7. Solutions for generic pricing • Incomplete insurance – bad for patients
  • 8. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US)
  • 9. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US) – bad for patient access
  • 10. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US) – bad for patient access • Fixed ratio of the brand price (QC, Canada)
  • 11. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US) – bad for patient access • Fixed ratio of the brand price (QC, Canada) --$$
  • 12. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US) – bad for patient access • Fixed ratio of the brand price (QC, Canada) --$$ • Tender to supply the entire market (NZ, Saskatchewan Canada)
  • 13. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US) – bad for patient access • Fixed ratio of the brand price (QC, Canada) --$$ • Tender to supply the entire market (NZ, Saskatchewan Canada) – varying outcomes, risk of shortages
  • 14. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US) – bad for patient access • Fixed ratio of the brand price (QC, Canada) --$$ • Tender to supply the entire market (NZ, Saskatchewan Canada) – varying outcomes, risk of shortages • Yardstick competition (UK, Australia)
  • 15. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US) – bad for patient access • Fixed ratio of the brand price (QC, Canada) --$$ • Tender to supply the entire market (NZ, Saskatchewan Canada) – varying outcomes, risk of shortages • Yardstick competition (UK, Australia) – varying outcomes, very intrusive
  • 16. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US) – bad for patient access • Fixed ratio of the brand price (QC, Canada) --$$ • Tender to supply the entire market (NZ, Saskatchewan Canada) – varying outcomes, risk of shortages • Yardstick competition (UK, Australia) – varying outcomes, very intrusive • Declining price schedule (price tiers based on the number of generics) (Austria, Portugal)
  • 17. Solutions for generic pricing • Incomplete insurance – bad for patients • Competition between pharmacies for preferred status (US) – bad for patient access • Fixed ratio of the brand price (QC, Canada) --$$ • Tender to supply the entire market (NZ, Saskatchewan Canada) – varying outcomes, risk of shortages • Yardstick competition (UK, Australia) – varying outcomes, very intrusive • Declining price schedule (price tiers based on the number of generics) (Austria, Portugal) – little evidence
  • 18. Variation in prices by mechanism System Jurisdiction Average Price Fixed ratio Quebec 100 Tender NZ 43 Tender Saskatchewan 139 Benchmark England 76 Benchmark Australia 252 Tiered pricing Austria 153 Source: Fixation des prix des médicaments génériques au Québec, 2013. Quebec prices are normalized. Ten common generic drugs are used to construct the price index.
  • 19. • There are benefits and costs of these different strategies for controlling reimbursement prices. • From an antitrust perspective, each strategy has different effects on the nature of competition. • Competition authorities have a legitimate interest in the mechanisms used by insurers, and also possess special competence to help guide the mechanisms that are chosen.
  • 20. Thanks! • Contact at ahollis@ucalgary.ca • Resources: • FR: http://www.csbe.gouv.qc.ca/fileadmin/www/2013/Medicaments/CSBE_Politi ques_prix_generique_juin_2013.pdf • EN: http://www.csbe.gouv.qc.ca/fileadmin/www/2013/Medicaments/CSBE_Gene ric_Drug_Pricing_Policy_Quebec.pdf