The Price Elasticity of Specialty Drug Use: Evidence from Cancer Patients in Medicare Part D

Jung Jeah (), Feldman Roger D. and McBean Marshall
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Jung Jeah: Pennsylvania State University College of Health and Human Development – Health Policy and Administration, 604 Ford Building, University Park, PA 16802-6500, USA
Feldman Roger D.: University of Minnesota – Twin Cities – Health Policy and Management, Minneapolis, MN, USA
McBean Marshall: University of Minnesota – Twin Cities – Health Policy and Management, Minneapolis, MN, USA

Forum for Health Economics & Policy, 2017, vol. 20, issue 2, 19

Abstract: Specialty drugs can bring substantial benefits to patients with debilitating conditions, such as cancer, but their costs are very high. Insurers/payers have increased patient cost-sharing for specialty drugs to manage specialty drug spending. We utilized Medicare Part D plan formulary data to create the initial price (cost-sharing in the initial coverage phase in Part D), and estimated the total demand (both on- and off-label uses) for specialty cancer drugs among elderly Medicare Part D enrollees with no low-income subsidies (non-LIS) as a function of the initial price. We corrected for potential endogeneity associated with plan choice by instrumenting the initial price of specialty cancer drugs with the initial prices of specialty drugs in unrelated classes. We report three findings. First, we found that elderly non-LIS beneficiaries with cancer were less likely to use a Part D specialty cancer drug when the initial price was high: the overall price elasticity of specialty cancer drug spending ranged between −0.72 and −0.75. Second, the price effect in Part D specialty cancer drug use was not significant among newly diagnosed patients. Finally, we found that use of Part B-covered cancer drugs was not responsive to the Part D specialty cancer drug price. As the demand for costly specialty drugs grows, it will be important to identify clinical circumstances where specialty drugs can be valuable and ensure access to high-value treatments.

Keywords: Medicare Part D; price elasticity; specialty cancer drugs; specialty drug use (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1515/fhep-2016-0007

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