حاشیه و سهم بازار : انگیزه های داروسازی برای جایگزینی کل

We study the impact of product margins on pharmacies' incentive to promote generics instead of brand-names. First, we construct a theoretical model where pharmacies can persuade patients with a brand-name prescription to purchase a generic version instead. We show that pharmacies' substitution incentives are determined by relative margins and relative patient copayments. Second, we exploit a unique product level panel data set, which contains information on sales and prices at both producer and retail level. In the empirical analysis, we find a strong relationship between the margins of brand-names and generics and their market shares. This relationship is stronger for pharmaceuticals under reference pricing rather than coinsurance. In terms of policy implications, our results suggest that pharmacy incentives are crucial for promoting generic sales.

In this paper we study pharmacies' role in promoting generic substitution and thus competition between brand-names and generics. Most consumers enter the pharmacy with a prescription of a brand-name product due to the tendency of physicians to prescribe brand-names rather than the cheaper, but therapeutically equivalent, generic versions. Insurers (payers) therefore use various instruments to increase competition and generic market shares in order to reduce pharmaceutical expenditures. One important instrument is generic substitution regulation, which implies that pharmacies can dispense a generic substitute to consumers with a brand-name prescription. However, convincing consumers that a generic product is of the same quality (therapeutically equivalent) as the brand-name product prescribed by the physician is likely to involve costly promotional effort by the pharmacies, so what are the incentives for pharmacies to engage in generic substitution? The obvious answer is the pharmacies' profitability of selling generics rather than brand-names. We therefore study the role of pharmacies in promoting generic sales by analysing the relationship between the margins that pharmacies obtain for brand-names and generics and their respective market shares. We find this issue interesting for several reasons. First, pharmaceutical expenditures are growing in most Western countries, and the off-patent market is becoming increasingly important as patents have expired for several blockbusters.1 Stimulating generic competition is therefore seen as one of the most important instruments for regulators (payers) to contain costs in this industry. Second, our paper is, to the best of our knowledge, the first to study the role of pharmacies in promoting generic sales and the effect of generic substitution regulation. There are several papers on the physicians' prescription choice between brand-names and generics.2 There are also a few, recent papers on the physicians' choice of drug when they are allowed to dispense drugs and can pocket the product margin.3 There is also a large literature on the impact of regulation and copayment schemes on generic sales, where recent studies show that reference pricing, which imposes extra copayments on patients that demand high-priced brand-names, tends to promote generic sales and reduce prices and expenditures.4 None of these studies consider the role of pharmacies in stimulating generic sales. Finally, our study offers insight into retailer incentives more broadly, as we study the promotional incentives for steering consumers toward more profitable products. The idea that retailers can influence consumers' purchase choices among competing products, and that their incentives to do so depend on relative margins, goes back at least as far as Telser (1960).5 Similar incentives are likely to be present in many downstream markets, where retailers sell rival products (e.g., grocery stores, electronic stores, car dealers, etc.), not just in the pharmaceutical market.6 We study the pharmacies' incentives for generic substitution both theoretically and empirically. In the theoretical part, we set up a vertical differentiation model where brand-names are perceived to be of higher quality than their generic versions. Within this framework we introduce a (monopoly) pharmacy that may expend effort on persuading consumers to buy a generic version, for instance, by informing them that the products are therapeutically equivalent.7 We analyse the pharmacy's substitution incentives under different copayment schemes (i.e., coinsurance and reference pricing) and pricing regimes (i.e., prices are regulated or set by the pharmacy). The theoretical analysis offers three main findings. First, we show that the pharmacy's incentive for generic substitution is higher (i) the larger the generic margin is relative to the brand-name margin, and (ii) the lower the generic copayment is relative to the brand-name copayment. If the brand-name margin is higher than the generic margin, the pharmacy has no incentives to expend effort on generic substitution. Moreover, if the brand-name copayment is equal to (or even lower than) the generic copayment, the pharmacy would not be able to convince patients to substitute the prescribed brand-name with a generic version. Second, we show that pharmacy price setting involves counteracting effects on the generic substitution effort. A lower, say, brand-name price implies a lower brand-name margin, which increases the generic substitution effort. However, a lower brand-name price also implies a lower copayment difference, which makes consumers less willing to accept a generic substitute. Optimal pharmacy pricing balances these two considerations. Finally, we show that reference pricing gives stronger incentives for generic substitution effort than regular coinsurance provided that the distribution of consumers' willingness-to-pay is characterised by either an increasing or a sufficiently weakly decreasing density function. The reason is that reference pricing induces larger copayment differences between brand-names and generics, and therefore higher financial gains for consumers purchasing generics, which implies that substitution effort by the pharmacy is more effective. This result holds irrespective of whether prices are regulated or set by the pharmacy. Based on the theoretical analysis, we derive two testable predictions: (i) a larger difference between generic and brand-name margins increases the generic market share; (ii) this effect is stronger in therapeutic markets where drugs are subject to reference pricing. In the empirical part, we test these two predictions using a unique product-level data set with detailed information on all prescription-bound sales in Norway. Our data set is generated by merging two public register databases from the Norwegian Institute of Public Health containing sales information at pharmacy level (the Prescription database) and at producer level (the Wholesale database). The databases are merged by using wholesaler-pharmacy ownership information, which allows us to compute the product margin for brand-names and generics.8 Our data set covers 70 off-patent substances, where brand-names face competition from generic versions, over a four-year period from 2004 to 2008. The descriptive statistics show that brand-names are on average priced higher than generics both at pharmacy and producer level.9 However, the average brand-name margin is much lower than the average generic margin, suggesting that pharmacies have a financial incentive to engage in generic substitution. We test the relationship between relative product margins and market shares using fixed effects for substitution groups10 and wholesaler (pharmacy chain). Since price changes at pharmacy (retail) level affects both margins and demand (through the change in copayments), we control for the pharmacy price differences of brand-names and generics. We find a highly significant association between relative brand-name and generic product margins and their market shares. The result confirms our first prediction that a larger difference between generic and brand-name margins increases the generic market share due to pharmacies substitution effort. We also find that the association is stronger for pharmaceuticals subject to reference pricing rather than regular coinsurance, which suggests that pharmacy substitution effort is more effective when the copayment difference is larger. This result is consistent with our second prediction. We check the robustness of our results in various ways. One issue is endogeneity in pharmacy pricing as a response to changes in producer prices. We deal with this by using Danish pharmacy prices as instruments, and show that the results are qualitatively the same. In terms of policy implications, our analysis highlights the importance of taking pharmacy incentives into account when designing the optimal regulatory scheme for the pharmaceutical industry. Since brand-names are generally priced higher than their generic versions, regressive mark-up regulation at pharmacy level is a necessary and powerful regulatory instrument to promote generic sales at pharmacy level. However, pharmacy incentives needs to be matched with an appropriate copayment scheme where patients financially benefit from purchasing generic versions. Our results show that reference pricing provides stronger incentives than regular coinsurance for pharmacies to promote generic products. Thus, when taking pharmacy incentives into account, the cost-saving effect of reference pricing might be even higher than previously thought. The rest of the paper is organised as follows. In Section 2 we present a theoretical model of pharmacy incentives and derive some key results regarding the relationship between margins and market shares for brand-name and generic drugs. Section 3 describes the institutional background and the Norwegian pharmaceutical market. In Section 4 we present data and descriptive statistics, while Section 5 describes our empirical method and results. In Section 6 we briefly discuss policy implications before the paper is concluded in Section 7.