Do cost-sharing and entry deregulation curb pharmaceutical innovation?

• Published in: Journal of health economics Vol. 32; no. 5; pp. 881 - 894
• Main Author: Grossmann, Volker
• Format: Journal Article
• Language: English
• Published: Netherlands Elsevier B.V 01-09-2013; Elsevier Sequoia S.A
• Subjects: Coinsurance; Control; Cost engineering; Cost Sharing; Deregulation; Drug and Narcotic Control - legislation & jurisprudence; Drug Costs; Drug Discovery; Drug Industry - legislation & jurisprudence; Economics; Entry deregulation; Expenditures; Health; Health administration; Health insurance; Labor; Models, Statistical; Patent breadth; Patents as Topic; Pharmaceutical industry; Pharmaceutical innovation; Pharmaceuticals; Price regulations; Productivity; Research & development expenditures; Studies; United States; United States; Cost-sharing; Health insurance; Patent breadth; I10; Entry deregulation; L10; Pharmaceutical innovation; O30
• ISSN: 0167-6296; 1879-1646
• DOI: 10.1016/j.jhealeco.2013.06.001

This paper examines the role of both cost-sharing schemes in health insurance systems and the regulation of entry into the pharmaceutical sector for pharmaceutical R&D expenditure and drug prices. The analysis suggests that both an increase in the coinsurance rate and stricter price regulations adversely affect R&D spending in the pharmaceutical sector. In contrast, entry deregulation may lead to higher R&D spending of pharmaceutical companies. The relationship between R&D spending per firm and the number of firms may be hump-shaped. In this case, the number of rivals which maximizes R&D expenditure per firm is decreasing in the coinsurance rate and increasing in labor productivity.