Retailing Policies for Generic Medicines
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Retailing Policies for Generic Medicines SUSANA NARCISO∗
[email protected]
Universidade Nova de Lisboa, Faculdade de Economia, Campus de Campolide, 1099-032 Lisboa, Portugal
As there is general disagreement about the way generic medicines should be commercialized, two retailing policies are analyzed, taking into account their effects on the welfare of patients, government, pharmacies and physicians. In the first policy scenario, pharmacies are allowed to substitute generic medicines for branded ones, while in the second, substitution is forbidden. In both cases a pharmacies association is allowed to have a share in the production of generic medicines. The model predicts that under some conditions patients may prefer substitution by pharmacies but when doctors’ decisions are binding, they are never “excessively bad”. However, the policy choice belongs to the government, which prefers to allow for substitution more often than patients would like. Keywords: generic medicines, substitution policy, pharmacies and physicians
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Introduction
It is a well known fact that in most countries health care expenses have greatly increased in the last years and that this trend will continue in the near future. Since pharmaceutical costs are a very important component of these increasing expenses, there are widespread policies towards the use of generic medicines. These drugs have the advantage of being much cheaper than the branded medicines, allowing consumers and health insurers to reduce their expenses for medicines. When a generic medicine enters the market1 the price of the branded drug is pressured to go down and the profit of the incumbent firm decreases. This effect leads the branded medicines’ producers to argue that competition reduces the incentives to invest in Research and Development (R&D) activities. However, it tends to be a misleading argument because the patent period is long enough to assure that firms have the right incentives to invest in R&D. Although the idea that the use of generic medicines reduces health costs is consensual, retailing policies differ among countries. In some countries, such as Denmark, Finland, Portugal and Germany, there are laws allowing pharmacists to substitute generic for branded medicines; in other countries such as Austria, Belgium, Greece and United Kingdom, for example, substitution is forbidden, that is, patients can only get a generic version of the ∗ Address correspondence to: Susana Narciso, Universidade Nova de Lisboa, Faculdade de Economia, Campus de Campolide, 1099-032 Lisboa, Portugal.
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medicine if the physician prescribes it. The divergences go even further because in countries where pharmacists can substitute generic for branded medicines the laws may allow doctors to prohibit the substitution and/or patients to refuse it. The divergence of policies aligns with the different points of view of the several agents in the health area. Physicians do not always agree with the possibility of substitution because they consider that other persons are deciding for
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