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A Probability Approach to Pharmaceutical Demand and Price Setting: Does the Identity of the Third-Party Payer Matters for Prescribing Doctors?

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  • Dalen Dag Morten

    ()

  • Locatelli Marilena

    ()

  • Sorisio Enrico

    ()

  • Strom Steinar

    ()
    (University of Turin)

Abstract

TNF-alpha inhibitors represent one of the most important areas of biopharmaceuticals by sales, with three blockbusters accounting for 8 per cent of total pharmaceutical sale in Norway. Novelty of the paper is to examine, with the use of a unique natural policy experiment in Norway, to what extent the price responsiveness of prescription choices is affected when the identity of the third-party payer changes. The three dominating drugs in this market, Enbrel, Remicade, and Humira, are substitutes, but have had different and varying funding schemes -hospitals and the national insurance plan. A stochastic structural model for the three drugs, covering demand and price setting, is estimated in a joint maximum likelihood approach. We find that doctors are more responsive when the costs are covered by the hospitals compared to when costs are covered by national insurance.

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Bibliographic Info

Paper provided by University of Turin in its series Department of Economics and Statistics Cognetti de Martiis. Working Papers with number 201110.

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Length: 31 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:uto:dipeco:201110

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  1. Paul Contoyannis & Jeremiah Hurley & Paul Grootendorst & Sung-Hee Jeon & Robyn Tamblyn, 2005. "Estimating the price elasticity of expenditure for prescription drugs in the presence of non-linear price schedules: an illustration from Quebec, Canada," Health Economics, John Wiley & Sons, Ltd., vol. 14(9), pages 909-923.
  2. Leibowitz, Arleen & Manning, Willard G. & Newhouse, Joseph P., 1985. "The demand for prescription drugs as a function of cost-sharing," Social Science & Medicine, Elsevier, vol. 21(10), pages 1063-1069, January.
  3. Sara Ellison Fisher & Iain Cockburn & Zvi Griliches & Jerry Hausman, 1997. "Characteristics of Demand for Pharmaceutical Products: An Examination of Four Cephalosporins," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 426-446, Autumn.
  4. Coscelli, Andrea & Shum, Matthew, 2004. "An empirical model of learning and patient spillovers in new drug entry," Journal of Econometrics, Elsevier, vol. 122(2), pages 213-246, October.
  5. Judith K. Hellerstein, 1998. "The Importance of the Physician in the Generic Versus Trade-Name Prescription Decision," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 108-136, Spring.
  6. O'Brien, Bernie, 1989. "The effect of patient charges on the utilisation of prescription medicines," Journal of Health Economics, Elsevier, vol. 8(1), pages 109-132, March.
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