A Prescription for Knowledge: Patient Information and Generic Substitution

Markets require informed participants to function efficiently. This paper examines the impact of providing targeted information directly to patients on their purchasing-decisions regarding pharmaceutical drugs. We analyze the effect of informational letters sent by a Swiss health insurer to clients who had recently purchased a brand-name drug, informing them of available generic alternatives and potential savings. Utilizing the quasi-randomized timing of the letter dispatch, we employ an event study design with staggered treatment adoption to estimate the causal effect of patient information on generic substitution probability. Based on 540,000 drug purchases by 60,000 patients we find that the probability of switching to a generic alternative increases by almost 30 percentage points immediately after receiving the informational letter, representing nearly a fourfold rise in the substitution likelihood among previous brand-name drug buyers. Furthermore, the effect does not substantially depend on whether patients face a copayment for their drug purchase and thus personally financially benefit from switching. Our results highlight the limits of healthcare policies that rely solely on financial incentives, particularly if patients lack sufficient information in their decision-making.