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Patient Welfare and Patient Compliance -- An Empirical Framework for Measuring the Benefits from Pharmaceutical Innovation

In: Medical Care Output and Productivity

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  • Paul Ellickson
  • Scott Stern
  • Manuel Trajtenberg

Abstract

The main goal of this paper is to develop an empirical framework for evaluating the patient welfare benefits arising from pharmaceutical innovation. Extending previous studies of the welfare benefits from innovation (Trajtenberg, 1990; Hausman, 1996), this paper unpacks the separate choices made by physicians and patients in pharmaceutical decisionmaking and develops an estimable econometric model which reflects these choices. Our proposed estimator for patient welfare depends on (a) whether patients comply with the prescriptions they receive from physicians and (b) the motives of physicians in their prescription behavior. By focusing on compliance behavior, the proposed welfare measure reflects a specific economic choice made by patients. We review evidence that the rate of noncompliance ranges up to 70%, suggesting an important gulf between physician prescription behavior and realized patient welfare. Since physicians act as imperfect but interested agents for their patients, the welfare analysis based on compliance must account for the nonrandom selection of patients into drugs by their physicians. The key contribution of this paper resides in integrating the choices made by both physicians and patients into a unified theoretical framework and suggesting how the parameters of such a model can be estimated from data.

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This chapter was published in:

  • David M. Cutler & Ernst R. Berndt, 2001. "Medical Care Output and Productivity," NBER Books, National Bureau of Economic Research, Inc, number cutl01-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7641.

    Handle: RePEc:nbr:nberch:7641

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    References

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    1. Stern, S. & Trajtenberg, M., 1998. "Empirical Implications of Physician Authority in Pharmaceutical Decisionmaking," Papers 24-98, Tel Aviv.
    2. Jonathan Gruber & Maria Owings, 1994. "Physician Financial Incentives and Cesarean Section Delivery," NBER Working Papers 4933, National Bureau of Economic Research, Inc.
    3. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, May.
    4. Bresnahan, Timothy F, 1986. "Measuring the Spillovers from Technical Advance: Mainframe Computers inFinancial Services," American Economic Review, American Economic Association, vol. 76(4), pages 742-55, September.
    5. Lichtenberg, Frank R, 1996. "Do (More and Better) Drugs Keep People Out of Hospitals?," American Economic Review, American Economic Association, vol. 86(2), pages 384-88, May.
    6. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
    7. Zvi Griliches, 1958. "Research Costs and Social Returns: Hybrid Corn and Related Innovations," Journal of Political Economy, University of Chicago Press, vol. 66, pages 419.
    8. Conrad, Peter, 1985. "The meaning of medications: Another look at compliance," Social Science & Medicine, Elsevier, vol. 20(1), pages 29-37, January.
    9. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-79, April.
    10. Tomas Philipson & Larry V. Hedges, 1998. "Subject Evaluation in Social Experiments," Econometrica, Econometric Society, vol. 66(2), pages 381-408, March.
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    Cited by:
    1. Mealem, Yosef & Siniver, Erez & Yaniv, Gideon, 2012. "Patient compliance, physician empathy and financial incentives within a principal-agent framework," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(6), pages 827-830.
    2. Anna Merino, 2003. "Demand for pharmaceutical drugs: A choice modelling experiment," Economics Working Papers 704, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Paris Cleanthous, 2011. "Welfare Effects of Pharmaceutical Informative Advertising," University of Cyprus Working Papers in Economics 02-2011, University of Cyprus Department of Economics.
    4. Lien, Hsien-Ming & Lu, Mingshan & Albert Ma, Ching-To & McGuire, Thomas G., 2010. "Progress and compliance in alcohol abuse treatment," Journal of Health Economics, Elsevier, vol. 29(2), pages 213-225, March.
    5. repec:reg:wpaper:141 is not listed on IDEAS
    6. Paris Cleanthous, 2011. "Evaluating Innovation and Moral Hazard in Pharmaceuticals," University of Cyprus Working Papers in Economics 03-2011, University of Cyprus Department of Economics.
    7. Lee G. Branstetter & Chirantan Chatterjee & Matthew Higgins, 2011. "Regulation and Welfare: Evidence from Paragraph IV Generic Entry in the Pharmaceutical Industry," NBER Working Papers 17188, National Bureau of Economic Research, Inc.
    8. Sorisio, Enrico & Strøm, Steinar, 2009. "Innovation and market dynamics in the EPO market," HERO On line Working Paper Series 2006:3, Oslo University, Health Economics Research Programme.
    9. Razzolini, Tiziano, 2004. "The Norwegian market for pharmaceuticals and the non-mandatory substitution reform of 2001: the case of enalapril," Memorandum 12/2004, Oslo University, Department of Economics.
    10. Karine Lamiraud & Pierre-Yves Geoffard, 2007. "Therapeutic non-adherence: a rational behavior revealing patient preferences?," Health Economics, John Wiley & Sons, Ltd., vol. 16(11), pages 1185-1204.
    11. Olivier Armantier & Soiliou Daw Namaro, 2003. "Prescription Drug Advertising and Patient Compliance: A Physician Agency Approach," Department of Economics Working Papers 03-01, Stony Brook University, Department of Economics.
    12. repec:hal:wpaper:halshs-00589121 is not listed on IDEAS
    13. repec:reg:wpaper:425 is not listed on IDEAS
    14. Anna Merino, 2003. "Demand for pharmaceutical drugs: A choice modelling experiment," Working Papers, Research Center on Health and Economics 704, Department of Economics and Business, Universitat Pompeu Fabra.

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