A paper by Li and Laxminarayan (Health Econ forthcoming) examines an interesting question:
Are physicians sensitive to drug prices faced by their patients? In an ideal world, physicians act as perfect agents for their patients, taking into consideration their medical needs and financial constraints. In reality, the choice of drug and whether a generic or brand-name product is prescribed is likely to be inﬂuenced by many factors on the patient side (e.g., medical need, expressed demand, financial conditions, and insurance coverage) and on the physician side (e.g., knowledge on drug effectiveness and cost, advertising, financial, and nonfinancial incentives).
Much of the literature has found that physicians are very sensitive to their own financial incentives, but are less sensitive to the price their patients face. Li and Laxminarayan, however, find the contrary results when Meijer—a large retailer—began offering free antibiotics. They find physicians become price sensitive.
- Increased Antibiotics. Free antibiotics program increased filled antibiotics prescriptions in the program area by 4.8% .
- Offsets. The number of filled prescriptions of covered antibiotics increased but was partially offset by the decrease in not-covered antibiotics
- Heterogeneity. Low-income areas observed a larger increase in covered antibiotics and a larger decrease in not-covered antibiotics. In other words, doctors in low-income areas are more sensitive to the price patients face.
One reason that physicians may be more sensitive to the price patients face in this case is that all patients could get free antibiotics. Typically, the price patients face varies across a physician’s panel since many patients have different insurance coverage. Thus, the informational cost of paying attention to patient needs is high. If insurance coverage were to become more uniform, perhaps physicians would pay more attention to patient cost-sharing considerations.
- Li, S. and Laxminarayan, R. (2013), ARE PHYSICIANS’ PRESCRIBING DECISIONS SENSITIVE TO DRUG PRICES? EVIDENCE FROM A FREE-ANTIBIOTICS PROGRAM. Health Econ.. doi: 10.1002/hec.3008