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Brand-name pharmaceutical companies have engaged in a variety of business conduct that has increased price. One of these activities involves “product hopping,” or brand switches from one version of a drug to another. The antitrust analysis of product hopping implicates antitrust law, patent law, the Hatch–Waxman Act, and state drug product selection laws, as well as uniquely complicated markets characterized by buyers different from decision makers. As a result, courts have offered inconsistent approaches to product hopping.

In this chapter, we offer a framework that courts and government enforcers can employ to analyze product hopping. The framework is the first to incorporate the characteristics of the pharmaceutical industry. It defines a “product hop” to include instances in which the manufacturer (1) reformulates the product to make the generic nonsubstitutable and (2) encourages doctors to write prescriptions for the reformulated rather than the original product.

When the conduct meets both requirements, our framework offers two stages of analysis. First, we propose two safe harbors to ensure that the vast majority of reformulations will not face antitrust review. Second, the framework examines whether the hop passes the “no-economic-sense” test, determining if the behavior would make economic sense if the hop did not have the effect of impairing generic competition. Showing just how far the courts have veered from justified economic analysis, the test would recommend a different analysis than that used in each of the five product-hopping cases that have been litigated to date, and a different outcome in two of them.

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.

The purpose of this investigation is to add to the body of knowledge regarding consumer skepticism toward advertising in general, and toward pharmaceutical advertising in particular. The study was conducted in the U.S. and in Germany. Skepticism toward advertising for both prescription and non-prescription pharmaceuticals was analyzed. Additional variables explored include: health consciousness, product involvement with pharmaceuticals, satisfaction with information in pharmaceutical advertising, and the importance of pharmaceutical advertising as a source of information. Furthermore, differences in the cultural value of uncertainty avoidance between U.S. and German consumers were examined and related to skepticism toward pharmaceutical advertising. Three hundred and forty-one Americans and 447 Germans were surveyed. A significant finding of this research revealed that skepticism toward pharmaceutical advertising is lower than skepticism toward advertising in general. Results also indicated that consumers showed no difference in their level of skepticism toward advertising for prescription versus non-prescription drugs. This is a particularly relevant finding as it relates directly to the ongoing discussion in Europe regarding whether or not to lift the ban on advertising for prescription drugs. Skepticism toward pharmaceutical advertising was found to be significantly negatively related to involvement with pharmaceuticals, to satisfaction with the informational content of the advertisements, to satisfaction with the comprehensibility of the advertisements, and to the importance placed on advertising as a source of health information. Regarding cultural differences, U.S. consumers appear to be less skeptical toward advertising in general, and toward advertising for prescription and non-prescription drugs in particular, than German consumers. This may be due to the lower degree of uncertainty avoidance in the U.S. Differences between the two countries related to the additional variables examined in the study are addressed as well. Implications for consumer protection policies are discussed, and recommendations for advertisers of pharmaceutical products are provided. The authors provide a cultural explanation for differences in the degree of skepticism between U.S. and German audiences.

Purpose – To analyse the development of pharmaceutical policy in the Dutch market for outpatient prescription drugs since the early 1990s.

Methodology – A literature review and document analysis is performed to examine the effects of pharmaceutical policy on the performance of the Dutch market for outpatient prescription drugs since the early 1990s.

Findings – Government efforts to control prices of pharmaceuticals were effective in constraining prices of in-patent drugs, but had an opposite effect on the prices of generic drugs. The gradual transition towards managed competition – that particularly gained momentum after the introduction of the new universal health insurance scheme in 2006 – appears to be more effective in constraining prices of generic drugs than earlier government efforts to control these prices.

Originality – Comparative analysis of the impact of price regulation and managed competition on generic drug prices in the Netherlands.

Implications – Implications of the changing role of health insurers are discussed for the future market for prescription drugs and role of pharmacies in the Netherlands.

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 investigation set out to uncover whether CSR appeals – socially and/or environmentally oriented efforts promoted as part of a corporation’s advertising campaign – present a fruitful strategy for pharmaceutical manufacturers. This study investigates whether consumers in the two countries are similar with regards to (1) attitudes toward CSR engagement (2) perception of the social engagement of a company (3) perceived product/cause fit and (4) evaluation of CSR versus non-CSR appeals in OTC pharma ads. A field study was conducted (483 subjects; non-student sample) to explore how a standardized promotional message with or without a CSR appeal is perceived in a cross-cultural setting. Results indicate that consumers’ response (with regard to attitudes toward CSR, perceived social engagement by a company, perceived product-cause fit, as well as ad evaluation) all varied by country. Consumer responses were only tested with regard to a fictitious product as well as for one product category. Overall results suggest that CSR messages resonated more with some consumers than with others and, thus, may need to be tailored by market. Apart from a very small number of investigations, neither consumer evaluations of over-the-counter (OTC) drug ads in general, nor responses to CSR ad appeals in particular, have been explored. Thus, this investigation’s primary goal is to explore responses toward CSR messages in non-prescription drug ads in the United States and Brazil.

Purpose – The purpose of this study is to estimate the own- and cross-price elasticity of brand-name outpatient prescription drug cost-sharing for maintenance medications and to estimate the effects of changes in the price differential between generic and brand-name prescription drugs.

Methodology/approach – We first review the literature on the effects of an increase in brand-name drug patient cost-sharing. In addition, we analyze two examples of utilization patterns in filling behavior associated with an increase in brand-name cost-sharing for patients in employer-sponsored health plans with chronic illness.

Findings – We found that the own-price elasticity of demand for brand-name prescription drugs was inelastic. However, the cross-price elasticity was not consistent in sign, and utilization patterns for generic prescription fills did not always increase after a rise in brand-name cost-sharing.

Research limitations – The empirical examples are limited to the experience of patients with employer-sponsored health insurance.

Practical implications – The common practice of increasing brand-name prescription drug patient cost-sharing to increase consumption of generic drugs may not always result in higher generic medication use. Higher brand-name drug cost-sharing levels may result in discontinuation of chronic therapies, instead of therapeutic switching.

Originality/value of chapter – The value of this chapter is its singular focus on the effects of higher brand-name drug cost-sharing through a synthesis of the literature examining the own- and cross-price elasticity of demand for brand-name medications and two empirical examples of the effects of changes in brand-name cost-sharing.

Pedro Pita Barros reviews pharmaceutical policies adopted by health care systems in European (OECD) countries. He notes that cost-sharing for pharmaceuticals is higher than cost-sharing for other services. However, although pharmaceutical cost-sharing is pervasive across the European Union, concerns over equity have led most countries to adopt sliding fee schedules and even outright exemptions from copayments for vulnerable populations such as the elderly and low income households. The most common form of price regulation in these countries is reference pricing, either “external” (pegging pharmaceutical payments to lowest prices in a group of countries) or “internal” (pegging pharmaceutical prices to the lowest price within a therapeutic class), as well as outright administrative price controls. In his theoretical results, Barros shows that reference pricing lowers cost to consumers the most, followed by administrative price lists, while the pure coinsurance system yields the higher total cost. To foster innovation, Barros proposes adoption of innovative payment schemes based on supply-side risk sharing whereby payments to drug manufacturers are tied to treatment results and patient outcomes. Such schemes are akin to pay-for performance methods used to reimburse physicians in certain managed care settings in the United States.

Purpose – This chapter explores the pharmaceutical industry's strategic utilization of empowerment discourse in two realms: direct-to-consumer advertising (DTCA) and clinical drug development.

Methodology – It draws upon two research projects that examine the role of the pharmaceutical industry in the political economy of healthcare in the United States: Ronald's policy analysis and participant observation of DTCA policy hearings and Fisher's participant observation and interviewing of the clinical trials industry.

Findings – Empowerment rhetoric is mobilized by the pharmaceutical industry to create specific expectations about patient-consumer behavior, particularly the responsibilities associated with the consumption of drugs.

Research implications – The social and economic implications of DTCA and drug trials must be understood within their broader historical and contemporary contexts of health advocacy, consumerism, and medical neoliberalism.

Practical implications – The chapter offers alternative constructions of healthcare subjects and pharmaceutical practices that can mitigate the power of the pharmaceutical industry and bring about better pharmaceutical governance.

Originality/value of chapter – By analyzing findings from two empirical projects, this chapter is able to shed light on trends in the pharmaceutical industry's discourse about empowerment and consumption from the clinical testing to marketing of new drugs.

Pharmaceuticals are essential for the management of many chronic conditions. As a result, it is important to examine how the administration of pharmaceutical benefits affects physicians and pharmacists providing chronic care services. In the 1990s, HMOs and PPOs began to more aggressively manage outpatient pharmaceutical benefits, leading to the growth of pharmaceutical benefit management companies (PBMs).

In this exploratory study, 10 primary care physicians and 12 pharmacists in the San Francisco area were interviewed in 1999, and 11 more pharmacists in 2004, on how they worked with PBMs and their controls on prescribing and dispensing. Responses indicated major problems for both health professionals in negotiating with the PBM as a third party payor, in coping with switches and multiple formularies, and in added work for the health care professional. Increased risk to chronically ill patients for poorer outcomes is an important related problem with PBMs.

The Medicare drug benefit law passed in 2003 will likely result in similar problems for many beneficiaries, including those with chronic care needs. The paper proposes some policy solutions to reduce PBM problems for physicians, pharmacists and the Medicare population.