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Reforming the Swedish pharmaceuticals market: consequences for costs per defined daily dose

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Abstract

In 2009 and 2010, the Swedish pharmaceuticals market was reformed. One of the stated policy goals was to achieve low costs for pharmaceutical products dispensed in Sweden. We use price and sales data for off-patent brand-name and generic pharmaceuticals to estimate a log-linear regression model, allowing us to assess how the policy changes affected the cost per defined daily dose. The estimated effect is an 18 % cost reduction per defined daily dose at the retail level and a 34 % reduction in the prices at the wholesale level (pharmacies’ purchase prices). The empirical results suggest that the cost reductions were caused by the introduction of a price cap, an obligation to dispense the lowest-cost generic substitute available in the whole Swedish market, and the introduction of well-defined exchange groups. The reforms thus reduced the cost per defined daily dose for consumers while being advantageous also for the pharmacies, who saw their retail margins increase. However, pharmaceutical firms supplying off-patent pharmaceuticals experienced a clear reduction in the price received for their products.

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Notes

  1. The prices set by the pharmacies are equal all over Sweden, and the cost of products sold in the pharmacies are equal to the list prices determined in the auction to become product of the month. As such, there is a high degree of equivalence between price and cost in the Swedish pharmaceuticals market.

  2. Ministry of Health and Social Affairs (2009a, b).

  3. Wholesale prices of off-patent products are set in the monthly national tender process. Retail prices are regulated at a level determined by the outcome of the tender in combination with the formula regulating the retail margin.

  4. In the Appendix, we show that the estimate of the total reform effect remain stable when using two alternative measures instead of DPS2009.

  5. Excluding observations from February, 2009, when the reform bill was presented to parliament, until July 2009, when the first elements of the reform became effective, resulted in a slightly more negative estimate of the time trend and reduced the absolute value of the point estimates for the reform effect with 1–2 % points for retail prices and with 3–4 % points for wholesale prices. As another sensitivity analysis, we included separate time trends for each exchange group. When estimated on the subsample of exchange groups with positive sales throughout the whole period, results remain stable. For the full sample, the estimated reform effect falls, e.g. from \(-\)0.42 to \(-\)0.34 in the regression on wholesale prices excluding W and MD, but we believe one reason for this is overfitting.

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Acknowledgments

Financial support from the Swedish Competition Authority is gratefully acknowledged. We are also grateful to IMS Sweden and Tillväxtanalys for supplying the data used in this paper. The authors declare that the founding source had no role in the development of the article.

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Correspondence to Niklas Rudholm.

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Appendix

Appendix

The indicator variable DPS2009 is based on the last of the three criteria for the price cap to become effective (see “The reform” section), so that the indicator takes the value 1 six months after patent expiration for the period after July 2009. As a sensitivity analysis, we have also performed estimations with two alternative variables, Generics4_2009 and DPS2009_Binding. Generics4_2009, is based on the second criteria of the price cap and takes the value 1 from July 2009 if there have been positive generic sales for at least 4 months. DPS2009_Binding takes the value 1 if the brand-name drug actually lowered its price in the summer of 2009 and 6 months had passed since patent expiration. DPS2009_Binding is thus intended to indicate if the price cap were binding. Note that both Generics4_2009 and DPS2009_Binding are potentially endogenous; the first since generic entry and exit depends on prices and the second since the price cap can only be binding if the second criteria is fulfilled, if generics are sold at below 30 % of the patent price, and if the brand-name drug had not already reduced its price with more than 65 %.

For the model where MD sales and the vector of potentially endogenous variables, W, are excluded, key results are reported in Table 4. To facilitate comparisons, corresponding results from estimates with DPS2009 are also presented in the table. As can be seen, the estimated total reform effect remains nearly unchanged under the alternative specifications. This is true also for models with MD sales and/or W included. Similarly, individual estimates are not very sensitive to choice between DPS2009 and Generics4_2009. However, the estimates for DPS2009_Binding are significantly different from the other two. Using this variable also reduced the estimates of Oct2009 with nearly one standard error. Yet the estimated total reform effect remains relatively unaffected, since this variable only take the value 1 for about 25 % of the observations after July 2009, while the corresponding figures for DPS2009 and Generics4_2009 are 95–96 %.

Table 4 Estimation results, cost per DDD, retail and wholesale prices, excluding MD sales and W

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Bergman, M.A., Granlund, D. & Rudholm, N. Reforming the Swedish pharmaceuticals market: consequences for costs per defined daily dose. Int J Health Econ Manag. 16, 201–214 (2016). https://doi.org/10.1007/s10754-016-9186-4

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