Parallel Trade of Pharmaceuticals. Conflicts in Health Policy Objectives and Regulatory Externalities in the EU Internal Market

Birg, Laura

Health policy in the EU is characterized by two underlying conflicts: First, government interventions or pharmaceutical parallel trade, i.e. trade outside the manufacturer's authorized distribution channel, may induce a conflict between different health policy objectives such as expenditure reduction and distributive objectives. Second, health policy is in the competence of member states, but the EU internal market may generate externalities of national decisions. This thesis addresses these conflicts of pharmaceutical regulation within the EU. Initially, I compare a maximum price system (price cap regulation) and a reference price system (reimbursement limit) with respect to their performance in different health policy objectives. The reference price system reduces public pharmaceutical expenditure to a larger extent, but results in higher financial exposure of patients and lower access to pharmaceuticals. The subsequent chapters investigate the link between pharmaceutical parallel trade and pharmaceutical regulation. Chapter 4 illustrates that national decisions on health policy, in particular, changes in coinsurance rates, result in externalities under parallel trade. Parallel trade generates a price-decreasing competition effect in the destination country and a price-increasing double marginalization effect in the source country. An increase of the coinsurance rates in the destination country mitigates the double marginalization effect in the source country. An increase of the coinsurance rate in the source country reinforces the competition effect in the destination country. A subsequent chapter compares a coinsurance scheme (consumers pay a percentage of the drug price out-of-pocket) and an indemnity insurance scheme (reimbursement is independent of the drug price) with respect to the consequences of parallel trade on health care systems, especially on changes of co-payments and changes of public pharmaceutical expenditure. In the destination country, co-payments for patients decrease to a larger extent under indemnity insurance, reductions of public pharmaceutical expenditure occur only under coinsurance. In the source country, co-payments increase less under coinsurance, health expenditure is reduced more under indemnity insurance. The last chapter studies the effect of pharmaceutical regulation at the wholesale level, in particular, maximum wholesale margins (restriction of pricing by the intermediary) and mandatory rebates (restriction of the pricing by the manufacturer) on drug prices, quantities, and public pharmaceutical expenditure. Maximum wholesale margins enhance the manufacturer's ability to reduce competition from parallel trade in the destination country by increasing wholesale prices. In a symmetric equilibrium, maximum wholesale margins of both countries party offset each other, mandatory rebates reinforce each other.

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Birg, Laura: Parallel Trade of Pharmaceuticals. Conflicts in Health Policy Objectives and Regulatory Externalities in the EU Internal Market. 2012.

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