مقررات و رقابت در بازار دارویی تایوانی تحت بیمه سلامت ملی

This article investigates the determinants of the prices of pharmaceuticals and their impact on the demand for prescription drugs in the context of Taiwan's pharmaceutical market where medical providers earn profit directly from prescribing and dispensing drugs. Based on product-level data, we find evidence that the profit-seeking behavior of the medical providers in the prescription drug market transfers the force of competition from the unregulated wholesale market to the regulated retail market and hence market competition still plays an important role in the determination of the regulated price. We also find that the profit-seeking behavior plays a similar role to advertising in that it increases the brand loyalty and hence lowers price elasticity. An important implication of our study is that the institutional features in the pharmaceutical market matter in shaping the nature of pharmaceutical competition and the responsiveness of pharmaceutical consumption with respect to changes in price.

In recent years, a substantial amount of technological progress in medicine has taken the form of pharmaceutical innovation. As a result, an increasing number of studies have paid attention to how the pharmaceutical market operates in the health sector (Berndt, 2002). In particular, the determinants of the prices of pharmaceuticals and their effects on the demand for prescription drugs have long been a focus in this line of research (see, e.g., Berndt et al., 1995, Ellison et al., 1997, Lu and Comanor, 1998, Rizzo, 1999, Danzon and Chao, 2000, Pavcnik, 2002, Ekelund and Persson, 2003, Wang, 2006, Dalen et al., 2006, Iizuka, 2007 and Ellison and Snyder, 2010). However, most of these studies used data obtained from Western countries where prescribing and dispensing are separated. The experiences of East Asian countries where physicians prescribe and dispense drugs are much less well researched. A few exceptions include Wang (2006) and Iizuka (2007) who target their research on the pharmaceutical markets in China and Japan, respectively. Compared to other markets in the economic sector in general and in the health sector in particular, study outcomes of the pharmaceutical market are more likely to be sensitive to the institutional features because of the complex institutional context in this market (Reinhardt, 2007). In many countries, governments provide insurance coverage for prescription drugs and regulate the prices that they reimburse. In addition, physicians act as front-line professional agents, making consumption decisions on behalf of their patients in the prescription drug market. Instead of a simple bilateral relationship between demand (the buyer) and supply (the seller), these characteristics shape the structure of the prescription drug market in a quadrilateral relationship: the pharmaceutical firm, the medical provider, the patient and the payer. Whether or not the study outcomes on the determinants of prices and their effects on the demand for prescription drugs are sensitive to the alternative structures of this quadrilateral relationship is an issue that is well worth exploring. This article uses the prescription drug market in Taiwan as an example to investigate the question of how the institutional features of the health sector affect the determinants of price and quantity in the pharmaceutical market. In Taiwan, the government provides universal insurance coverage for prescription drugs and regulates the reimbursement price. In addition, physicians both prescribe and dispense drugs. As a result, Taiwan's pharmaceutical market provides an interesting setting in which to address the following two questions: (1) Compared to the system where prescribing and dispensing are separated, does the integration of prescribing and dispensing alter the form of price competition in the pharmaceutical market, and how does it do so? (2) How is the price elasticity of demand for prescription drugs influenced by institutional features such as the integration of prescribing and dispensing? The remainder of this article is organized as follows. Section 2 describes the conceptual framework that is based on the institutional features of the prescription drug market in Taiwan. Section 3 describes the data and methodology used in the analysis. Section 4 presents the results, and Section 5 summarizes our findings and discusses policy implications.

This article empirically investigates the determinants of the regulated price and its impact on the demand for prescription drugs in a setting in which the single public payer regulates the reimbursement price for prescription drugs and medical providers earn profit directly from prescribing and dispensing drugs. Using a product-level data set that contains quarterly time series of price and quantity for 496 pharmaceutical products consumed in Taiwan, our study has several important findings. First, we find that the regulated price is responsive to the degree of market competition as measured by the number of competing products in the same generic and therapeutic markets. Specifically, we find that generic competition (measured by the number of generic competitors) affects regulated prices for both branded and generic drugs, but therapeutic competition (measured by the number of therapeutic competitors) only affects the price of brand-name drugs and has no additional effect on the price of generic products. Secondly, we also find that the demand for prescription drugs is responsive to changes in the regulated price. The estimated price elasticity of demand for prescription drugs is −0.97. Compared to brand-name drugs, the consumption of generic drugs is less responsive to price changes. Our findings have two policy implications. First, the profit-seeking behavior of the medical providers in the prescription drug market serves as a transmission mechanism to transfer the force of competition from the wholesale market to the retail market through a market price survey. As a result, regulation does not weaken the competition in the pharmaceutical market, and market competition still plays an important role in the determination of the regulated price. Although this profit-seeking behavior introduces competition to the regulated market, this competition may not enhance the efficiency of the pharmaceutical market. Rather, the profit-seeking behavior of the medical providers in the pharmaceutical market gives rise to two distortions in the relative prices in the health sector, which in turn lead to a loss of efficiency in resource allocation. The first distortion is of the price of prescription drugs relative to health-care services. Compared to prescription drugs, health-care services such as providing diagnostic information and surgical treatment are very labor-intensive. In contrast to physical products, there is no wholesale market for services, and hence no profit margin between reimbursement and acquisition prices. In view of the margin on prescription drugs, medical providers have a financial incentive to substitute prescription drugs for other inputs, which in turn leads to an increase in pharmaceutical consumption and inefficiently high drug expenditure (Iizuka, 2007 and Trottmann, 2010). The second distortion attributable to the integration of prescribing and dispensing is between the prices of brand-name and generic drugs. Profit margins induce medical providers to include drugs in their own formularies based on the size of the margin instead of efficacy, safety, or cost. Several studies find evidence of the physicians’ choice of brand-name or generic drugs being influenced by profit margins (Liu et al., 2009, Rischatsch and Trottmann, 2009 and Rischatsch et al., 2009). Given the fact that the regulation of the bio-equivalence test is not strictly enforced in some countries, such as Taiwan and China, and hence brand-name and generic drugs are not always perfect substitutes, the generic substitution induced by profit margins will in turn lower the quality of health care. Second, our finding that price has a significantly negative effect on the quantity of drug consumption indicates that the demand curve for prescription drugs is downward sloping instead of being a vertical line. This suggests that quantity increases induced by cutting regulated prices offset part of the cost-containment effort although the demand is inelastic in that cutting prices leads to a saving in the overall expenditure. Since we find that the demand for generic drugs is less responsive to price changes as compared to brand-name drugs, this suggests that the offsetting effect of lowering price is smaller for generic products than for brand-name products. As a result, generic drugs are better targets for cutting prices with a view to containing costs, which in turn would reduce the profit margins of generic drugs and is beneficial to reducing the distortion in the relative prices between generic and brand-name products.