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With expenditures totaling $227 billion in 2007, prescription drug purchases are a growing portion of the total medical expenditure, and as this industry continues to grow, prescription drugs will continue to be a critical part of the larger health care industry. This chapter presents a survey on the economics of the US pharmaceutical industry, with a focus on the role of R&D and marketing, the determinants (and complications) of prescription drug pricing, and various aspects of consumer behavior specific to this industry, such as prescription drug regulation, the patient's interaction with the physician, and insurance coverage. This chapter also provides background in areas not often considered in the economics literature, such as the role of pharmacy benefit managers in prescription drug prices and the differentiation between alternative measures of prescription drug prices.

Objective – To examine whether local area pharmacy market structure influences contract terms between prescription drug plans (PDPs) and pharmacies under Part D.

Data – Data were collected and compiled from four sources: a national mail survey to independent pharmacies, National Council for Prescription Drug Programs (NCPDP) Pharmacy database, 2000 U.S. Census data, and 2006 Economic Census data.

Results – Reimbursements varied substantially across pharmacies. Reimbursement for 20mg Lipitor (30 tablets) ranged from $62.40 to $154.80, and for 10mg Lisinopril (30 tablets), it ranged from $1.05 to $18. For brand-name drug Lipitor, local area pharmacy ownership concentration had a consistent positive effect on pharmacy bargaining power across model specifications (estimates between 0.084 and 0.097), while local area per capita income had a consistent negative effect on pharmacy bargaining power across specifications(−0.149 to −0.153). Few statistically significant relationships were found for generic drug Lisinopril.

Conclusion – Significant variation exists in PDP reimbursement and pharmacy bargaining power with PDPs. Pharmacy bargaining power is negatively related to the competition level and the income level in the area. These relationships are stronger for brand name than for generics. As contract offers tend to be non-negotiable, variation in reimbursements and pharmacy bargaining power reflect differences in initial insurer contract offerings. Such observations fit Rubinstein's subgame perfect equilibrium model.

Implication – Our results suggest pharmacies at the most risk of closing due to low reimbursements are in areas with many competing pharmacies. This implies that closures related to Part D changes will have limited effect on Medicare beneficiaries’ access to pharmacies.

Purpose – As Medicare Part D enters its fifth year, we assess how the supply side of the market has evolved and what research has shown about how Medicare drug coverage has affected consumers.

Methods – We conduct descriptive data analyses to explore the varied nature of Medicare standalone prescription drug plans (in terms of both price and non-price features), examine features associated with high enrollment, and show trends over time in both plan design and enrollment patterns from 2006 to 2010. We also review existing evidence about Part D's effects on drug access for beneficiaries and conclude with a discussion of current policy concerns.

Findings – Medicare Part D has been successful in certain ways, but several areas of concern remain. Although it is a measure of success that 90% of Medicare beneficiaries now have drug coverage, efforts continue to reach the vulnerable populations who are not yet signed up. Use of medications (and relative use of generics) has increased under the program, while out of pocket costs have fallen. Policymakers continue to question government's role in areas such as negotiating prices directly with pharmaceutical manufacturers and limiting the number of plans offered. Results from data analysis indicate, among other things, high growth in premiums, whereas plans have become less generous by certain measures.

Originality – This chapter brings together data on all plans offered in Medicare Part D standalone drug coverage market and shows new evidence on the landscape's rapid evolution.

Purpose – To evaluate the efficiency consequences of the Medicare Part D program.

Methods – We develop and empirically calibrate a simple theoretical model to examine the static and the dynamic welfare effects of Medicare Part D.

Findings – We show that Medicare Part D can simultaneously reduce static deadweight loss from monopoly pricing of drugs and improve incentives for innovation. We estimate that even after excluding the insurance value of the program, the welfare gain of Medicare Part D roughly equals its social costs. The program generates $5.11 billion of annual static deadweight loss reduction and at least $3.0 billion of annual value from extra innovation.

Implications – Medicare Part D and other public prescription drug programs can be welfare-improving, even for risk-neutral and purely self-interested consumers. Furthermore, negotiation for lower branded drug prices may further increase the social return to the program.

Originality – This study demonstrates that pure efficiency motives, which do not even surface in the policy debate over Medicare Part D, can nearly justify the program on their own merits.

This chapter assesses the doctrine of reasonable interchangeability through the lens of the US Department of Justice’s (DOJ’s) successful effort to enjoin the megamerger of two of the largest national insurance companies, Aetna and Humana. The DOJ focused its challenge on the companies’ Medicare Advantage business, arguing that it is a separate product market from original Medicare and the merger would substantially reduce competition in the market for Medicare Advantage in many geographic markets across the country. The case turned on whether there was reasonable interchangeability between original Medicare and Medicare Advantage in the eyes of consumers. The judge relied on both practical indicia of interchangeability, including evidence of how likely Medicare beneficiaries were to switch between Medicare Advantage and Original Medicare, along with econometric evidence. The decision provides a useful roadmap of how a knowledgeable judge reviewing a merger will consider both Brown Shoe factors and econometric evidence in assessing reasonable interchangeability.

The Federal Trade Commission (FTC) has initiated policies and legal challenges that have shaped the evolution of competition in healthcare. This chapter discusses not only discusses the current matters in healthcare competition, but it also gives a history of past issues faced by the FTC and the approaches used to resolve them. These FTC actions range from challenges to hospital mergers to preventing “reverse payments” from patent holders to generic entrants in pharmaceuticals. Ultimately the healthcare industry faces many unique regulatory and competitive aspects that, while challenging, do not require special rules.

The rising of chronic illness and the continuous aging of the global population requires a re-organization of health care systems based on relations and exchange of information to address patient needs in the community. The re-organization of health care systems involves interconnected changes and the development of integrated health care information systems and novel eHealth services. In Crete, the Foundation for Research and Technology-Hellas has developed HYGEIAnet, a Regional Health Information Network (RHIN) to contribute to the re-organization of health care systems and information sharing. We present HYGEIAnet, some of the most critical and novel eHealth services developed and deployed, discuss the impact of an RHIN on health care processes, and explore innovative models and services for health delivery and the coordination of care. We then critically discuss lessons learned regarding the effective management of change to overcome organizational and cultural issues in such large-scale initiatives. The paper concludes with policy and practice recommendations for managing change processes in health care organizations.

The purpose of this paper is to define the roles of the key health industry constituents – patients, employers, health insurers, hospitals, physicians, Government, pharmaceutical companies and other industry suppliers, plagued with the decline of the health status and affordability in the USA.

Reviews literature to back up the author's views.

As health‐care demands increase and the constituent roles blur, the industry will experience a gradual convergence. Convergence will redefine and create overlap in the boundaries between the traditional health industry suppliers and in the end this convergence will reshape the future of the health industry.

Predicts that the drivers of change – deteriorating public health, poor quality and safety, and unaffordable health care – will continue to accelerate. Convergence will be gradual and the impact may not be immediately obvious, but the long‐term outcome will dramatically reshape the industry. For the major suppliers in the industry, recognizing convergence is only the first step. Navigating convergence so the decisions made by an organization are both productive and profitable, rather than debilitating, is a far more complicated endeavor. The decisions made will not only affect the future of each supplier but also significantly impact the constituent at the center of this industry – the patient.