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

Rika Onishi Mortimer.

No 97-258, Economics Working Papers from University of California at Berkeley

Abstract: 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.

Date: 1997-11-01
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