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Generic Price Regulation and Drug Expenditures: Evidence from Canada

  • Yang Li
    Correspondence
    Corresponding author: Yang Li, 310-2 IEB, 199 Taikang East Road, 315100 Ningbo, China. . Phone: (+86)13221421129
    Affiliations
    School of Economics, Faculty of Humanities and Social Sciences, The University of Nottingham Ningbo China, 310-2 IEB, 199 Taikang East Road, 315100 Ningbo, China
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Published:January 24, 2023DOI:https://doi.org/10.1016/j.jval.2023.01.008
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      Highlights

      • a.
        Whether pharmaceutical price regulation is effective in reducing expenditures is inconclusive, with both positive and negative results documented in previous research.
      • b.
        This paper contributes by providing evidence from Canada. It also contributes to understanding the policy mechanisms, with a focus on the demand-side incentives and the role of health insurance, which were rarely discussed in previous research.
      • c.
        The mechanisms analysis suggests that the ability of price controls rests on the interaction with demand-side regulations and incentives. The success in cost containment in Canada can provide some insights to other countries with similar needs and priority.

      Abstract

      Objectives

      Rapid growth in pharmaceutical spending is a major challenge in Canada. To control rising costs, the Canadian government implemented a generic pricing policy in 2013, which reduced prices for some prescription generic drugs by roughly 50 percent. This paper explores the effects of the Canadian pricing policy on drug expenditures and drug utilization among seniors.

      Methods

      Using a unique prescription claims data, this paper adopts a difference-in-differences methodology to estimate the policy effects, and further investigates the mechanisms by exploring the demand-side incentives and the role of health insurance design with a triple-difference approach.

      Results

      Exploiting the policy variation across drugs and provinces, my results suggest that the policy has reduced drug expenditure per capita, largely due to the inelastic demand among seniors. Although the policy leads to lower out-of-pocket costs for seniors facing co-insurance than for those with a fixed co-payment, individual utilization and total demand display no differences across cost-sharing.

      Conclusions

      The price regulation in Canada was successful in reducing drug expenditures per capita. The success rests on the interaction with demand-side regulations and demand incentives. The evidence of cost containment in Canada can provide some insights to other countries with similar needs and priority.

      Keywords

      JEL

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