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Revised 15 July 2003.

Abstract

The aim of this paper is to analyse the relationship between reference prices (RPs), generic medicines and generic substitution at pharmacy level. In particular, the focus is on generic reference pricing. RPs in general aim to control reimbursement prices to reduce public pharmaceutical expenditure. In addition, generic reference pricing also aims to increase the use of generic medicines. The link between generic reference pricing and generic medicines is that the RP is usually set as a function of generic prices. Generic RPs are also linked with generic substitution because, without the possibility of substitution at pharmacy level, the potential cost savings from reference pricing will be reduced. RPs in general have been relatively successful in reducing prices, but less successful at controlling pharmaceutical expenditure. Moreover, generic reference pricing has not necessarily led to significant increases in generic drug use in those countries where such a system has been implemented. This paper analyses the reasons for these results, and discusses further issues that need to be considered when considering an RP system, concentrating in particular on generic reference pricing.