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Demand for Prescription Drugs: The Effects of Managed Care Pharmacy Benefits

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  • Rika Onishi Mortimer

    (Department of Economics, University of California, Berkeley)

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    Abstract

    This paper examines how demand for prescription drugs is influenced by different types of insurance. In order to understand demand characteristics and the competitiveness of pharmaceutical markets, both intermolecular (therapeutic) and intramolecular (generic) substitutions are studied in the antidepressant and beta blocker (anti- hypertensive) markets. Mixed logit and other discrete choice models are applied to national survey and product sales data. The results indicate that demand in managed care sectors is more price elastic than in other sectors. Demand in the self-paid sector is found to be the least price elastic, despite the fact that patients must pay for the entire cost of drugs. The results confirm the effectiveness of managed care incentives in shifting prescription patterns toward less expensive products, and suggest the existence of an agency problem between physicians and patients.

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    Bibliographic Info

    Paper provided by EconWPA in its series HEW with number 9802002.

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    Date of creation: 23 Feb 1998
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    Handle: RePEc:wpa:wuwphe:9802002

    Note: 59 pp; PC-Word .doc
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    Web page: http://128.118.178.162

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    1. Anderson, Simon P & de Palma, Andre, 1992. "Multiproduct Firms: A Nested Logit Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 40(3), pages 261-76, September.
    2. Moore, William J & Newman, Robert J, 1993. "Drug Formulary Restrictions as a Cost-Containment Policy in Medicaid Programs," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 71-97, April.
    3. Ellison, S & Cockburn, I & Griliches, A & Hausman, J, 1996. "Characteristics of Demand for Pharmaceutical Products : an Examination of four Cephalosporins," Working papers 96-24, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Judith K. Hellerstein, 1994. "The Demand for Post-Patent Prescription Pharmaceuticals," NBER Working Papers 4981, National Bureau of Economic Research, Inc.
    5. Dranove, David, 1989. "Medicaid Drug Formulary Restrictions," Journal of Law and Economics, University of Chicago Press, vol. 32(1), pages 143-62, April.
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    Cited by:
    1. Johanna Vásquez Velásquez & Karoll Gómez Portilla, Elkin Castaño Vélez & José Vicente Cadavid Herrera & Andrés Ramírez Hassan, 2012. "Elasticidad de la demanda por medicamentos en el mercado farmacéutico privado en Colombia," DOCUMENTOS DE TRABAJO CIEF 010733, UNIVERSIDAD EAFIT.

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