Research

"Has the Shortened Drug Distribution Chain Impact Drug Prices? Evidence from the Implementation of Two-Invoice System in China" (with Xiaoxi Li & Nina Yin)

(Presented  at the 2023 Chinese Economists Society Annual Conference and the 2022 CHLR-Human Capital Conference; 

will be presented at the 2023 Southern Economic Association Meetings) 

Escalating drug spending has been a crucial issue that has generated intense policy debates in both developed and emerging countries. To improve transparency in drug prices and eliminate excessive profits from multi-tier distribution system, China has implemented a twoinvoice system (TIS) since late 2016 - a policy that limits the number of invoices between pharmaceutical manufacturers and end consumers (hospitals). This paper explores the temporal variation in implementation across provinces (2014-2017) with unique drug procurement-price data at firm-province-month level from 2011-2019 and investigate the impact of TIS on drug prices with staggered Difference-in-Difference method. Benefiting from detailed product (moleculeformulation-strength) level data, we are able to control for active ingredient FE, thus greatly eliminating the drug composition effect and employing only within-molecule variation. To our knowledge, this is the first comprehensive study to assess the effects of TIS policies on a national scale. Our results indicate that TIS did significantly increase drug prices nationally. In addition, we explore the financial data of listed pharmaceutical manufacturers and other healthcare-related upstream and downstream companies. The difference-in-difference analysis shows that selling expenses for pharmaceutical manufacturers increased significantly after the implementation of TIS, while their operating profit margins decreased significantly compared to other healthcare-related firms, including active pharmaceutical ingredient (API) companies, pharmaceutical intermediate manufacturers, medical device manufacturers, etc. The result is interesting in that it echoes the industry’s view that TIS moves the doctor rebates upwards from drug distribution sector to production sector in the forms of selling expenses and might reduce business productivities. 

"The Effects of Terminating Cost-sharing Reductions Payments on Plan Choices"

Government payment of cost-sharing reductions (CSRs) to health insurers was terminated in October 2017. However, insurers were still required to provide CSRs to eligible enrollees in the health insurance exchange (Marketplace). The Marketplace administration data show that, in response to the termination, insurers increased the premiums of the silver plan to make up for their loss; therefore, premium surcharges would generate more advanced premium tax credits (APTCs) to enrollees in the Marketplace. I first leverage variation in state price regulations and employ a difference-in-differences (DiD) design to identify the impact of the termination of CSRs payments on consumer insurance plan choices. My results show that in states that allowed insurers to significantly increase premiums for silver plans, more enrollees chose cheaper bronze plans and fewer enrollees chose silver plans after the CSRs subsidy was terminated. Second, I use differences in county income distributions to study the impact of CSRs elimination on health insurance choice. I find that if more people in a county have family incomes above 200% FPL, then more people will choose the bronze plan over the silver plan after the CSRs subsidy is terminated. These findings suggest that changing subsidy channels may encourage people to buy less expense health insurance plans, which is an unintended consequence of the termination of cost-sharing subsidies.