Higher pharmaceutical public expenditure after direct price control: improved access or induced demand? The Colombian case

Sergio I. Prada, Victoria E. Soto, Tatiana S. Andia, Claudia P. Vaca, Álvaro A. Morales, Sergio R. Márquez, Alejandro Gaviria

High pharmaceutical expenditure is one of the main concerns for policymakers worldwide. In Colombia, a middle-income country, outpatient prescription represents over 10% of total health expenditure in the mandatory benefits package (POS), and close to 90% in the complementary government fund (No POS). In order to control expenditure, since 2011, the Ministry of Health introduced price caps on inpatient drugs reimbursements by active ingredient. By 2013, more than 400 different products, covering 80% of public pharmaceutical expenditure were controlled. This paper investigates the effects of the Colombian policy efforts to control expenditure by controlling prices. Using SISMED data, the official database for prices and quantities sold in the domestic market, we estimate a Laspeyres price index for 90 relevant markets in the period 2011-2015, and, then, we estimate real pharmaceutical expenditure. Results show that, after direct price controls were enacted, price inflation decreased almost - 43%, but real pharmaceutical expenditure almost doubled due mainly to an increase in units sold. Such disproportionate increase in units sold maybe attributable to better access to drugs due to lower prices, and/or to an increase in marketing efforts by the pharmaceutical industry to maintain profits. We conclude that pricing interventions should be implemented along with a strong market monitoring to prevent market distortions such as inappropriate and unnecessary drug use.