Pharmaceutical price controls and minimum efficacy regulation: evidence from the United States and Italy.

OBJECTIVE: This article examines the relationship between drug price and drug quality and how it varies across two of the most common regulatory regimes in the pharmaceutical market: minimum efficacy standards (MES) and a mix of MES and price control mechanisms (MES + PC). DATA SOURCES: Our primary data source is the Tufts-New England Medical Center-Cost Effectiveness Analysis Registry which have been merged with price data taken from MEPS (for the United States) and AIFA (for Italy). STUDY
DESIGN: Through a simple model of adverse selection we model the interaction between firms, heterogeneous buyers, and the regulator. PRINCIPAL
FINDINGS: The theoretical analysis provides two results. First, an MES regime provides greater incentives to produce high-quality drugs. Second, an MES + PC mix reduces the difference in price between the highest and lowest quality drugs on the market.
CONCLUSION: The empirical analysis based on United States and Italian data corroborates these results. © Health Research and Educational Trust.