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Introduction Motivation and HypothesisPowerPoint Presentation

Introduction Motivation and Hypothesis

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Prescription Drug Demand Based on MortalityCarter CothranThesis Presentation for Master of Arts in EconomicsJuly 13, 2005

Cothran: Drug Pricing

IntroductionMotivation and Hypothesis

- What determines drug prices? Are they priced efficiently?
- Will the price of a prescription drug be influenced by the number of deaths or productivity losses it potentially avoids, in addition to other competitive influences?
- Estimate price as a function of market competition and the harm caused by the disease it treats.

Cothran: Drug Pricing

Previous Literature

- Danzon and Chao: “Does Regulation Drive out Competition in Pharmaceutical Markets?” JLE, 2000.
- Study effects of regulation on drug prices across 7 countries.
- Find that U.S. has greater effects of competition on prices through large generic market and first-mover advantage.

Cothran: Drug Pricing

PreviousLiterature - 2

- Civan and Maloney: Working paper, 2004. Evidence that drug development is motivated by incidence of disease and resulting economic loss.
- But, only for U.S. and a few other developed countries.
- Inefficient Pricing?

Cothran: Drug Pricing

Data Collection and Organization Sample of Drugs

- List of top sales and top prescriptions written for 2003 & 2004
- Rankings from Rxlist.com.
- Omitted drugs that were obviously not associated with fatal illnesses.
- Therapeutic competitors, pioneer brands, & ingredient equivalents (imitators) for these drugs were added to the collection if not already listed.

Cothran: Drug Pricing

Data Collection and Organization Prices

- Medco.com
- Retail prices: average of 60,000 pharmacies
- Formulary: price from state insurance plan
- Information with price:
- strength
- package size or quantity
- type, generic or brand
- manufacturer of brand

Cothran: Drug Pricing

Data Collection and Organization - 2Treatments, Dates, and Death totals

- Indications & Approval Dates: Rxlist.com, FDA label, Nursing Drug Handbook
- Also used to categorize which drugs are competitors.

- Mortality Data: CDC (1999 death tables)
- Link between categories of mortality and indications; sometimes loose and sometimes very specific.

Cothran: Drug Pricing

Empirical AnalysisVariables

- Price: average of price per amount of active ingredient in standard prescription.
- Variance of this price per unit of ingredient is informative.
- Sometimes forms can be combined; sometimes not. Average price over forms.

Cothran: Drug Pricing

Empirical Analysis – 2Variables

- Discount: Retail price minus formulary price divided by formulary price.
- Age: time since approval date
- First dates

- Classes of Drugs: On Patent; Pioneer; Imitator
- Tables 1, 2, and 3: Summary Statistics

Cothran: Drug Pricing

Determinants of Price

- Table 4: Regression using determinants from own-price effects
- Examine differences among 3 types of drugs, On Patent, Pioneer, and Imitator (omitted category)
- Not enough information for competitive influences

Cothran: Drug Pricing

Measuring Competitive EffectsVariables

- Therapeutic Competitor Categories
- Disease treated
- Action that drug takes

- Table 5: Frequency Table of Therapeutic Competitor Categories
- 121 categories
- Number of drugs in each

Cothran: Drug Pricing

Effects of Competition

- Competitor price measured by:
- Average price in Therapeutic Competitor Category
- Average price of Ingred. Equivalents for Pioneer; Therapeutic Competitor Category for On Patent
- Fixed Effects model to capture avg price in Therapeutic Competitor Categories

Cothran: Drug Pricing

Mortality Effects

- Linking Mortality to Therapeutic Competitor Categories
- Table 7: Summary Statistics
- General and Specific Category Deaths
- Death Rate: divide by total 1999 deaths
- Alternative General Category: equals specific category deaths when general deaths are same as specific deaths.

- Fixed Effects Values: results from regression (c ) in Table 6

Cothran: Drug Pricing

Relating Mortality to Price

- Table 8: Regression of Death Totals on Relative Prices for Therapeutic Competitor Categories
- Regressions a-d use F. E. coefficient values
- Regressions d-e use F. E. t-statistic values

Cothran: Drug Pricing

Conclusions

- Results offer support for using mortality as a measure of demand intensity.
- Additional work:
- Add more drugs (make sure that sample includes imitators if available)
- Refine therapeutic categories
- Refine links between therapeutic categories & mortality

Cothran: Drug Pricing

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