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Pecuniary and Non-Pecuniary Incentives in Prescription Pharmaceuticals: The Case of Statins

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  • Limbrock Frank

    (Kellogg School of Management, Northwestern University)

Abstract

Health insurance companies seek to influence the type of care patients receive in order to increase value in relation to cost. Traditional health insurance relies primarily on price mechanisms to affect patients' and doctors' choices, whereas managed care plans such as HMOs, as the name implies, affect choices directly thorough various forms of "managed care." I investigate the effect of pecuniary and non-pecuniary incentives used by health insurance companies to influence prescription decisions in an important class of pharmaceuticals, cholesterol-lowering drugs called Statins, using a discrete-choice demand model on patient-level data. My results suggest that HMOs are significantly more successful at influencing drug choice than traditional indemnity insurers. In conjunction with volume-contingent discounts given by drug producers, this could explain part of the cost-effectiveness differential between HMOs and traditional indemnity insurers.

Suggested Citation

  • Limbrock Frank, 2011. "Pecuniary and Non-Pecuniary Incentives in Prescription Pharmaceuticals: The Case of Statins," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-30, January.
    • Handle: RePEc:bpj:bejeap:v:11:y:2011:i:2:n:1
    DOI: 10.2202/1935-1682.2665
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    References listed on IDEAS

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    1. Ernst R. Berndt, 2002. "Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 45-66, Fall.
    2. Ching‐To Albert Ma & Thomas G. Mcguire, 2002. "Network Incentives in Managed Health Care," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(1), pages 1-35, March.
    3. Mark Duggan & Fiona Scott Morton, 2010. "The Effect of Medicare Part D on Pharmaceutical Prices and Utilization," American Economic Review, American Economic Association, vol. 100(1), pages 590-607, March.
    4. 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.
    5. Katherine Ho, 2009. "Insurer-Provider Networks in the Medical Care Market," American Economic Review, American Economic Association, vol. 99(1), pages 393-430, March.
    6. Gaynor Martin & Li Jian & Vogt William B, 2007. "Substitution, Spending Offsets, and Prescription Drug Benefit Design," Forum for Health Economics & Policy, De Gruyter, vol. 10(2), pages 1-33, July.
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    Cited by:

    1. Kate Ho & Ariel Pakes, 2014. "Hospital Choices, Hospital Prices, and Financial Incentives to Physicians," American Economic Review, American Economic Association, vol. 104(12), pages 3841-3884, December.
    2. Ding, Yu & Liu, Chenyuan, 2021. "Alternative payment models and physician treatment decisions: Evidence from lower back pain," Journal of Health Economics, Elsevier, vol. 80(C).
    3. Mariana Carrera & Dana Goldman & Geoffrey Joyce, 2013. "Heterogeneity in Cost-Sharing and Cost-Sensitivity, and the Role of the Prescribing Physician," NBER Working Papers 19186, National Bureau of Economic Research, Inc.
    4. Sacks, Daniel W., 2018. "Why do HMOs spend less? Patient selection, physician price sensitivity, and prices," Journal of Public Economics, Elsevier, vol. 168(C), pages 146-161.

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