Estimating the price elasticity of demand through value-based formulary designs

In 2010, Premera Blue Cross (Premera), a large nonprofit health plan in the Pacific Northwest implemented a value-based formulary design for its beneficiaries.   In essence, enrollees could purchase high-value treatments for low copayments and low-value treatments for higher copayments.  Can we use this change from more standard to value-base formulary designs to estimate the price elasticity…

Does physician knowledge of patient non-compliance change prescribing behavior in the real world?

This is the topic of a recent publication with co-authors Kata Bognar, Katie Everson, Michelle Brauer, Darius Lakdawalla and Felicia Forma.  The full title is Does knowledge of patient non-compliance change prescribing behavior in the real world? A claims-based analysis of patients with serious mental illness.  The abstract is below, but do read the whole thing…

Do Medicaid discounts increase prices?

A number of people talk about Medicaid “best price”…but what is it really?  StatNews provides a concise overview: The Medicaid best price law, enacted in 1990, requires drug manufacturers to charge the Medicaid program the lowest or “best” price they negotiate with any other buyer and send a rebate check to every state Medicaid department so…

340B Facts and Figures

The 340B program requires pharmaceutical firms to give large discounts to hospitals and clinics that serve high volumes of low-income patients.  This sounds like a good idea at first: give money to people who can’t afford their medicines.  However, when one reads the sentence above closely, it becomes clear that patients don’t receive these discounts:…

Economics of the Pharmaceutical Industry

Darius Lakdawalla has an very interesting review article in the Journal of Economic Literature on the Economics of the pharmacuetical industry.  Do read the whole thing, but below I have listed some highlights. A model of firm R&D decisions Lakdawalla uses a simple model based on Nordhaus (1969) to derive some important implications about pharmaceutical…

Hospital group purchasing and drug prices

Yesterday I noted that competition is key to driving down prices in health insurance markets.  Competition is about expanding the number of suppliers available for a given product.  Now let’s think about the demand side.  Does reducing the number of purchasers increase or decrease price?  One could think that price would fall because buyers would…