Patient and Provider Assessments of Adherence and the Sources of Disparities: Evidence from Diabetes Care
Jonathan D. Ketcham
September 2003
Abstract
This paper describes three prototypical systems of therapeutic reference pricing (RP) for
pharmaceuticals -- Germany, the Netherlands, and New Zealand -- and examines their effects on the
availability of new drugs, reimbursement levels, manufacturer prices and out-of-pocket surcharges
to patients. RP for pharmaceuticals is not simply analogous to a defined contribution approach to
subsidizing insurance coverage. Although a major purpose of RP is to stimulate competition, theory
suggests that this is unlikely and this is confirmed by the empirical evidence. Other effects of RP
differ across countries in predictable ways, reflecting each country's system design and other cost
control policies. New Zealand's RP system has reduced reimbursement and limited the availability
of new drugs, particularly more expensive drugs. Compared to these three countries, if RP were
applied in the US, it would likely have a more negative effect on prices of on-patent products, due
to the more competitive US generic market, and a more negative effect on R&D and on the future
supply of new drugs, due to the much larger US share of global pharmaceutical sales.
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