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Patient Welfare and Patient Compliance -- An Empirical Framework for Measuring the Benefits from Pharmaceutical Innovation

In: Medical Care Output and Productivity

  • Paul Ellickson
  • Scott Stern
  • Manuel Trajtenberg

The main goal of this paper is to develop an empirical framework for evaluating the patient welfare benefits arising from pharmaceutical innovation. Extending previous studies of the welfare benefits from innovation (Trajtenberg, 1990; Hausman, 1996), this paper unpacks the separate choices made by physicians and patients in pharmaceutical decisionmaking and develops an estimable econometric model which reflects these choices. Our proposed estimator for patient welfare depends on (a) whether patients comply with the prescriptions they receive from physicians and (b) the motives of physicians in their prescription behavior. By focusing on compliance behavior, the proposed welfare measure reflects a specific economic choice made by patients. We review evidence that the rate of noncompliance ranges up to 70%, suggesting an important gulf between physician prescription behavior and realized patient welfare. Since physicians act as imperfect but interested agents for their patients, the welfare analysis based on compliance must account for the nonrandom selection of patients into drugs by their physicians. The key contribution of this paper resides in integrating the choices made by both physicians and patients into a unified theoretical framework and suggesting how the parameters of such a model can be estimated from data.

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This chapter was published in:
  • David M. Cutler & Ernst R. Berndt, 2001. "Medical Care Output and Productivity," NBER Books, National Bureau of Economic Research, Inc, number cutl01-1, August.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 7641.
    Handle: RePEc:nbr:nberch:7641
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
    Phone: 617-868-3900
    Web page: http://www.nber.org
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    1. Stern, S. & Trajtenberg, M., 1998. "Empirical Implications of Physician Authority in Pharmaceutical Decisionmaking," Papers 24-98, Tel Aviv.
    2. Jonathan Gruber & Maria Owings, 1996. "Physician Financial Incentives and Cesarean Section Delivery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 99-123, Spring.
    3. Tomas Philipson & Larry V. Hedges, 1998. "Subject Evaluation in Social Experiments," Econometrica, Econometric Society, vol. 66(2), pages 381-408, March.
    4. Zvi Griliches, 1958. "Research Costs and Social Returns: Hybrid Corn and Related Innovations," Journal of Political Economy, University of Chicago Press, vol. 66, pages 419.
    5. Bresnahan, Timothy F, 1986. "Measuring the Spillovers from Technical Advance: Mainframe Computers inFinancial Services," American Economic Review, American Economic Association, vol. 76(4), pages 742-55, September.
    6. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-79, April.
    7. Daniel McFadden, 1977. "Modelling the Choice of Residential Location," Cowles Foundation Discussion Papers 477, Cowles Foundation for Research in Economics, Yale University.
    8. Conrad, Peter, 1985. "The meaning of medications: Another look at compliance," Social Science & Medicine, Elsevier, vol. 20(1), pages 29-37, January.
    9. Lichtenberg, Frank R, 1996. "Do (More and Better) Drugs Keep People Out of Hospitals?," American Economic Review, American Economic Association, vol. 86(2), pages 384-88, May.
    10. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, August.
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