Objectives: The generic reference price (GRP) was introduced in Italy in 2001. The main purpose of this paper is: (a) producing evidence regarding the effect of GRP on prices; (b) testing the hypothesis that there is a reallocation of demand from the genericated (and reference-priced) molecules to patent-protected products that have the same therapeutic indication.
Methods: The analysis used a unique dataset of quantities and revenues of six therapeutic groups that were observed for more than a decade. Difference-in-differences analysis is applied. Prices are adjusted for all the regulatory interventions in the ten years of observations, to control for confounding impact of these interventions.
Results: On average, prices dropped 13% more in groups to which GRP was applied than in other groups. Moreover, each entry of a new generic was associated with a price drop of around 2.8%. On the other hand, GRP did not induce any significant switching towards in-patent molecules.
Conclusions: We provide the first empirical results of the impact of GRP on prices in Italy and evidence that GRP cannot be held solely responsible for the often reported demand reallocation towards new and in-patent molecules.