Price Regulation of Pharmaceuticals: A Policy Experiment

Abstract

AbstractWhat does the demand for pharmaceutical look like? How effectively does a price regulation containthe pharmaceutical expenditures? To shed light on these questions, we estimate the demands for antihypertensive drugs in Korea (2003-2007) using NLM. The estimation results are followings; 1) Physicians are not sensitive to price differences and the price elasticities of the original drugs are further reduced after the entry of generic drugs. 2) The market share of the molecule losing the patent protection decreases after the patent expiration. 3) The generic drug’s age has a negative impact on the market share of molecule whereas the original drug’s age has a positive impact. 4)Molecules in the same therapeutic subgroup are close substitutes, implying that nesting by the therapeutic subgroup matters. Using these estimation results, we assess South Korea’s pharmaceutical price and reimbursement reform policy, which was implemented in 2007 (called “Drug expenditure rationalizing plan”). We estimate 3.98% decreases in the drug expenditures due to the price regulation policy in South Korea.