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Price elasticity and pharmaceutical selection: the influence of managed care

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  • Marisa Elena Domino
  • David S. Salkever

Abstract

State Medicaid programs are turning increasingly to managed care to control expenditures, although the types of managed care programs in use have changed dramatically. Little is known about the influence of the shifting Medicaid managed care arena on treatment decisions. This paper investigates factors affecting the selection of treatments for depression by providers participating in either of two Medicaid managed care programs. Of particular interest is the influence of medication price on the choice of treatment, since one vehicle through which managed care organizations can reduce total expenditures is by increasing the price sensitivity of participating providers. We take a new approach by phrasing the problem as a discrete choice, using a nested multinomial logit model for the analyses. Contrary to earlier literature, we find some evidence that physicians in both programs do take price into consideration when selecting among treatment options. HMO providers in particular demonstrate increased price sensitivity in the two most commonly prescribed categories of antidepressants. Copyright © 2002 John Wiley & Sons, Ltd.

Suggested Citation

  • Marisa Elena Domino & David S. Salkever, 2003. "Price elasticity and pharmaceutical selection: the influence of managed care," Health Economics, John Wiley & Sons, Ltd., vol. 12(7), pages 565-586, July.
    • Handle: RePEc:wly:hlthec:v:12:y:2003:i:7:p:565-586
    DOI: 10.1002/hec.743
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    References listed on IDEAS

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    1. Ernst R. Berndt & Susan H. Busch & Richard G. Frank, 1998. "Price Indexes for Acute Phase Treatment of Depression," NBER Working Papers 6799, National Bureau of Economic Research, Inc.
    2. Gaynor, Martin, 1994. "Issues in the Industrial Organization of the Market for Physician Services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 211-255, Spring.
    3. Richard G. Frank & Ernst R. Berndt & Susan H. Busch, 1998. "Price Indexes for the Treatment of Depression," NBER Working Papers 6417, National Bureau of Economic Research, Inc.
    4. Hensher, David A, 1986. "Sequential and Full Information Maximum Likelihood Estimation of a Nested Logit Model," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 657-667, November.
    5. Denig, P. & Haaijer-Ruskamp, F.M. & Zijsling, D.H., 1988. "How physicians choose drugs," Social Science & Medicine, Elsevier, vol. 27(12), pages 1381-1386, January.
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    Cited by:

    1. Andree Ehlert & Dirk Oberschachtsiek & Stefan Prawda, 2013. "Cost Containment and Managed Care: Evidence from German Macro Data," Working Paper Series in Economics 284, University of Lüneburg, Institute of Economics.
    2. Merja Halme & Kari Linden & Kimmo Kääriä, 2009. "Patients’ Preferences for Generic and Branded Over-the-Counter Medicines," The Patient: Patient-Centered Outcomes Research, Springer;International Academy of Health Preference Research, vol. 2(4), pages 243-255, December.
    3. Andree Ehlert & Dirk Oberschachtsiek, 2014. "Does managed care reduce health care expenditure? Evidence from spatial panel data," International Journal of Health Economics and Management, Springer, vol. 14(3), pages 207-227, September.
    4. Edward C. Norton & Jangho Yoon & Marisa Elena Domino & Joseph P. Morrissey, 2006. "Transitions between the public mental health system and jail for persons with severe mental illness: a Markov analysis," Health Economics, John Wiley & Sons, Ltd., vol. 15(7), pages 719-733, July.
    5. Matthew Ryan & Rhema Vaithianathan, 2015. "The Regulation of Direct-to-Consumer Advertising of Pharmaceuticals in a Managed Care Setting," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(6), pages 986-1021, December.
    6. Domino, Marisa Elena & Huskamp, Haiden, 2005. "Does provider variation matter to health plans?," Journal of Health Economics, Elsevier, vol. 24(4), pages 795-813, July.
    7. Marisa E. Domino, 2012. "Does managed care affect the diffusion of psychotropic medications?," Health Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 428-443, April.

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