• Jaume Puig-Junoy.
• Department of Economics and Business, Universitat Pompeu Fabra, Barcelona, Spain. jaume.puig@upf.edu
• Appl Health Econ Health Policy. 2012 Nov 1;10(6):441-51.

BackgroundIn many countries with generic reference pricing, generic producers and distributors compete by means of undisclosed discounts offered to pharmacies in order to reduce acquisition costs and to induce them to dispense their generic to patients in preference over others.ObjectiveThe objective of this article is to test the hypothesis that under prevailing reference pricing systems for generic medicines, those medicines sold at a higher consumer price may enjoy a competitive advantage.MethodReal transaction prices for 179 generic medicines acquired by pharmacies in Spain have been used to calculate the discount rate on acquisition versus reimbursed costs to pharmacies. Two empirical hypotheses are tested: the discount rate at which pharmacies acquire generic medicines is higher for those pharmaceutical presentations for which there are more generic competitors; and, the discount rate at which pharmacies acquire generic medicines is higher for those pharmaceutical forms for which the consumer price has declined less in relation to the consumer price of the brand drug before generic entry (higher-priced generic medicines).ResultsAn average discount rate of 39.3% on acquisition versus reimbursed costs to pharmacies has been observed. The magnitude of the discount positively depends on the number of competitors in the market. The higher the ratio of the consumer price of the generic to that of the brand drug prior to generic entry (i.e. the smaller the price reduction of the generic in relation to the brand drug), the larger the discount rate.ConclusionsUnder reference pricing there is intense price competition among generic firms in the form of unusually high discounts to pharmacies on official ex-factory prices reimbursed to pharmacies. However, this effect is highly distorting because it favours those medicines with a higher relative price in relation to the brand price before generic entry.

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