The Structure of Prescription Drug Markets
The Structure of Prescription Drug Markets
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Summary
This page highlights some of the key findings from my research into prescription drug markets, much of it in collaboration with Luca Maini.
The overarching goal of the research is to understand the market structure of drug markets (including patient behavior and strategic behavior by firms), how policy interacts with the structure, and the implications for consumer health, overall spending, and innovation incentives.
The research makes use of claims data from a variety of sources (MEPS, MarketScan, IQVIA), pricing data from SSR Health, insurance coverage data from MMIT, and manually collected data from financial filings and business news.
History-Dependence in Drug Demand
History-Dependence in Drug Demand
Review of Economics and Statistics
Patients stick to drug brands at very high rates, unless newer drugs are significantly better. I show evidence that this impacts entry timing incentives by comparing the price of Priority Review Vouchers to initial sales.
[Published Version] [Latest Working Paper] [Online Appendix]
Demand Inertia and the Hidden Impact of Pharmacy Benefit Managers
Demand Inertia and the Hidden Impact of Pharmacy Benefit Managers
Management Science (w/ Luca Maini)
Pharmacy Benefit Managers counteract the upward pricing pressure created by demand inertia. PBMs reduce total spending on drugs by about 28 percent relative to a world with direct pricing and coinsurance. The model also helps explain the declining net prices in the market for Hepatitis C cures.
Profiting from Most-Favored Customer Procurement Rules: Evidence from Medicaid
Profiting from Most-Favored Customer Procurement Rules: Evidence from Medicaid
AEJ Policy (w/ Thomas Hwang and Luca Maini)
We show that a 2010 change to Medicaid reimbursement rules for prescription drugs reduced spending in both Medicaid and non-Medicaid segments (2.5 percent in the latter). Part of this was driven by the weakening of the most-favored customer rules in Medicaid.
[Published Version] [Latest Working Paper] [Online Appendix]
Mergers that Matter: the Impact of M&A Activity in Prescription Drug Markets
Mergers that Matter: the Impact of M&A Activity in Prescription Drug Markets
JPE Micro (w/ Thomas Hwang, Yunjuan Liu, and Luca Maini)
We find that most mergers do not lead to significant price increases. Stealth mergers that combine therapeutic substitutes, which are often executed as the licensing of marketing rights, do lead to large price increases of about 88 percent. Acquisitions that consolidate drugs with different indications leave markets unaffected on average, but are occasionally followed by prices increases when they significantly expand a company's portfolio.
Stocking Under the Influence: Spillovers from Commercial Drug Coverage to Medicare Utilization
Stocking Under the Influence: Spillovers from Commercial Drug Coverage to Medicare Utilization
Major revisions requested, American Economic Review (w/ Emma Dean and Luca Maini)
We show that variation in the commercial insurance coverage of physician-administered drugs affects Medicare utilization, despite Medicare insuring all such drugs. We provide evidence that this is driven by hospital stocking incentives, and build a model to capture the interaction of the insurance coverage game and the facility stocking game.
Template Governance and Value Capture in Intermediaries: Evidence from Pharmacy Benefit Managers
Template Governance and Value Capture in Intermediaries: Evidence from Pharmacy Benefit Managers
We study the upstream strategy problem faced by pharmacy benefit managers (PBMs) when using national formularies (templates). On the one hand, national formularies help PBMs improve their bargaining position versus drug manufacturers. On the other hand, PBMs need a large number of clients, who may have heterogeneous preferences and want to adjust the coverage relative to the template. We show several facts: i) Larger clients are more likely to edit the basic national formulary template; ii) PBMs adjust national formularies based on previous year's deviations, but do so less for high-stakes drugs; iii) non-adoption of national formularies and plan size are key predictors of the breakup of client-PBM relationships.
Our results also speak to the limits to market power in the industry. After the Express Scripts-Medco merger, Express Scripts had a sharp increase in market share. However, rather than tipping the market because of improved bargaining position, the market share advantage eroded over time as large inherited clients switched to other PBMs.
Other Publications
Other Publications
JAMA (w/ Thomas Hwang, Stacie Dusetzina, Luca Maini, and Aaron Kesselheim)
Health Economics (w/ Matt Higgins and Elena Patel)
Review of Industrial Organization (w/ Thomas Hwang, Jacob Klimek, and Luca Maini)
Journal of General Internal Medicine (w/ Thomas Hwang, Stacie Dusetzina, Luca Maini, and Aaron Kesselheim)
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