Regional variation in prescription drug spending: Evidence from regional migrants in Sweden

There is substantial variation in drug spending across regions in Sweden, which can be justified if caused by differences in health need, but an indication of inefficiencies if primarily caused by differences in place‐specific supply‐side factors. This paper aims to estimate the relative effect of individual demand‐side factors and place‐specific supply‐side factors as drivers of geographical variation in drug spending in Sweden. We use individual‐level register data on purchases of prescription drugs matched with demographic and socioeconomic data of a random sample of about 900,000 individuals over 2007–2016. The primary empirical approach is a two‐way fixed effect model and an event study where we identify demand‐ and supply‐side effects based on how regional and local migrants change drug spending when moving across regional and municipal borders. As an alternative approach in robustness checks, we also use a decomposition analysis. The results show that the place‐specific supply‐side effect accounts for only about 5%–10% of variation in drug spending and remaining variation is due to individual demand‐side effects. These results imply that health policies to reduce regional variation in drug spending would have limited impact if targeted at place‐specific characteristics.