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Demand for Prescription Drugs: The Effects of Managed Care Pharmacy Benefits

  • Rika Onishi Mortimer

    (Department of Economics, University of California, Berkeley)

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    This paper examines how demand for prescription drugs is influenced by different types of insurance. In order to understand demand characteristics and the competitiveness of pharmaceutical markets, both intermolecular (therapeutic) and intramolecular (generic) substitutions are studied in the antidepressant and beta blocker (anti- hypertensive) markets. Mixed logit and other discrete choice models are applied to national survey and product sales data. The results indicate that demand in managed care sectors is more price elastic than in other sectors. Demand in the self-paid sector is found to be the least price elastic, despite the fact that patients must pay for the entire cost of drugs. The results confirm the effectiveness of managed care incentives in shifting prescription patterns toward less expensive products, and suggest the existence of an agency problem between physicians and patients.

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    Paper provided by EconWPA in its series HEW with number 9802002.

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    Date of creation: 23 Feb 1998
    Date of revision:
    Handle: RePEc:wpa:wuwphe:9802002
    Note: 59 pp; PC-Word .doc
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    1. Dranove, David, 1989. "Medicaid Drug Formulary Restrictions," Journal of Law and Economics, University of Chicago Press, vol. 32(1), pages 143-62, April.
    2. Simon P. Anderston & Andre de Palma, 1991. "Multiproduct Firms: A Nested Logit Approach," Discussion Papers 973, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Judith K. Hellerstein, 1994. "The Demand for Post-Patent Prescription Pharmaceuticals," NBER Working Papers 4981, National Bureau of Economic Research, Inc.
    4. Sara Ellison Fisher & Iain Cockburn & Zvi Griliches & Jerry Hausman, 1997. "Characteristics of Demand for Pharmaceutical Products: An Examination of Four Cephalosporins," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 426-446, Autumn.
    5. Moore, William J & Newman, Robert J, 1993. "Drug Formulary Restrictions as a Cost-Containment Policy in Medicaid Programs," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 71-97, April.
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