Augmenting Reference Pricing of Pharmaceuticals with Strategic Cross-Product Agreements: The Case of Statins and Ace Inhibitors in New Zealand
Abstract: Reference pricing pharmaceuticals involves subsidizing medicines at the lowest price ruling in a given therapeutic sub-group. Disappointment at its apparent inability to contain public medicine expenditures sufficiently has led regulators in New Zealand to augment reference pricing by cross-product strategic agreements which require firms seeking subsidization of new medicines to significantly reduce their prices in unrelated markets, frequently for relatively unpopular medicines. Examination of the markets for Statins and ACE Inhibitors in New Zealand shows that expected price matching has not typically accompanied these agreements. Imperfect medicine substitutability plus concern about international benchmarking of medicine prices are proposed as explanations for these results.
JEL classification: I11; I18