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Is Price Inflation Different for the Elderly? An Empirical Analysis of Prescription Drugs

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  • Ernst R. Berndt
  • Iain M. Cockburn
  • Douglas L. Cocks
  • Arnold Epstein
  • Zvi Griliches

Abstract

Using annual IMS data from 1990 to 1996, we examine empirically whether whether elderly-nonelderly price inflation differentials exist for one medical item, namely, prescription pharmaceuticals. We assess prices for Rx for Rx drugs destined for ultimate use by the elderly vs. the nonelderly at three points in the distribution chain: initial sales from manufacturers, intermediate purchases by retail pharmacies, and final sales from retail pharmacies to patients/payors. We find that at the initial point in the distribution chain, there are no differences in price inflation for the aggregate of drugs destined for use by the elderly vs. the nonelderly. At the intermediate sell-in to pharmacy distribution point, we examine antibiotics (ABs), antidepressants (ADs) and calcium channel blockers (CCBs). For ABs, since 1992 elderly price inflation is somewhat greater than for the young, reflecting in part the elderly's more intensive use of newer branded products having fewer side effects, adverse drug interactions and more convenient dosing--attributes of particular importance to the elderly. For ADs, elderly price inflation is considerably less than for the young, due in large part to the elderly's greater use of older generic products. For CCBs, elderly- nonelderly differentials are negligible. None of these differentials adjusts for variations in quality. At the final retail sell-out point, we only examine ADs. We find that since retailers obtain larger gross margins on generic than on branded products, and because the elderly are disproportionately large users of generic ADs, the elderly-nonelderly price inflation differential benefiting the elderly at the intermediate point is reduced considerably at final sale.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6182.

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Date of creation: Sep 1997
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Publication status: published as Berndt, Ernst R., Iain M. Cockburn, Douglas L. Cocks, Arnold M. Epstein and Zvi Griliches. "Is Price Inflation Different For The Elderly? An Empirical Analysis Of Prescription Drugs," Forum for Health Economics and Policy, 1998, v1, Article 3.
Handle: RePEc:nbr:nberwo:6182

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  1. Zvi Griliches & Iain Cockburn, 1995. "Generics and New Goods in Pharmaceutical Price Indexes," NBER Working Papers 4272, National Bureau of Economic Research, Inc.
  2. David M. Cutler & Ellen Meara, 1998. "The Medical Costs of the Young and Old: A Forty-Year Perspective," NBER Chapters, in: Frontiers in the Economics of Aging, pages 215-246 National Bureau of Economic Research, Inc.
  3. Ernst R. Berndt & Zvi Griliches & Joshua G. Rosett, 1992. "Auditing the Producer Price Index: Micro Evidence From Prescription Pharmaceutical Preparations," NBER Working Papers 4009, National Bureau of Economic Research, Inc.
  4. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1996. "Are Medical Prices Declining?," NBER Working Papers 5750, National Bureau of Economic Research, Inc.
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Cited by:
  1. Bart Hobijn & David Lagakos, 2005. "Inflation Inequality In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 581-606, December.
  2. Michel Grignon, 2005. "Aging, Health and Aggregate Medical Care Spending in France," Department of Economics Working Papers 2005-05, McMaster University.
  3. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," Levine's Working Paper Archive 228400000000000002, David K. Levine.
  4. Sara Fisher Ellison & Catherine Wolfram, 2001. "Pharmaceutical Prices and Political Activity," NBER Working Papers 8482, National Bureau of Economic Research, Inc.
  5. Sara Fisher Ellison & Catherine Wolfram, 2004. "Coordinating on Lower Prices: Pharmaceutical Pricing Under Political Pressure," Economics Working Papers 0048, Institute for Advanced Study, School of Social Science.

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