Research on Prescription Drug Markets

Summary

This page highlights some of the key findings from my research into prescription drug markets, much of it in collaboration with Luca Maini and Thomas Hwang. 

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.

Drug Demand and Adherence

1) People stick to the same drug brand, unless a new drug is significantly better or if generics/line extensions are available (details)

Paper: History-Dependence in Drug Demand (Review of Economics and Statistics, Forthcoming)

Methodology: temporal discontinuities, heterogeneity analysis, structural estimation

Implications: firms will pay a lot for early entry (e.g., priority review vouchers); the returns from launching line extensions can be very high







2) Children's drug adherence decrease significantly during the COVID pandemic (details)

Paper: Pediatric Drug Adherence and Parental Attention (w/ Matt Higgins and Elena Patel; NBER Working Paper)

Methodology: difference in difference using a vast majority of asthma claims from 2018-2020, heterogeneity analysis

Implications: parental attention matters for children's health; the impact of the pandemic was large across all groups of children






Pricing and Market Structure

1) PBMs offset the inflationary pressures created by demand inertia and reduce manufacturer profits and overall spending (details)

Paper: Demand Inertia and the Hidden Impact of Pharmacy Benefit Managers (w/ Luca Maini; accepted at Management Science)

Methodology: descriptive evidence, structural analysis of a dynamic game

Implications: without PBMs, higher and increasing prices; without inertia, decreasing prices as more competitors enter (e.g., Hep C)





2) Insurance coverage rules matter for price negotiations

Paper: Price Increases of Protected-Class Drugs in Medicare Part D, Relative to Inflation, 2012-2017 (w/ Thomas Hwang, Stacie Dusetzina, Luca Maini, and Aaron Kesselheim; JAMA)

Methodology: diff-in-diff

Implications: generous coverage rules can weaken the negotiation position of PBMs and lead to larger price increases




3) Medicaid reimbursement rules matter for private markets (details)

Paper: Profiting from Most-Favored Customer Procurement Rules: Evidence from Medicaid (w/ Thomas Hwang and Luca Maini; forthcoming at AEJ Policy)

Methodology: diff-in-diff around key policy change, theory plus heterogeneity analysis to unpack the role of Medicaid's best price clause

Implications: 2010 Medicaid policy change likely led to reduced spending in private markets; removing Medicaid's best price clause would lead to price reductions in the private market 




4) Incumbent biologics compete with biosimilar entrants by offering greater rebates (unless the entrant has stronger clinical evidence; details)

Paper: Biosimilar Entry and the Pricing of Biologic Drugs (w/ Luca Maini, Jacob Klimek, and Thomas Hwang)

Methodology: diff-in-diff around biosimilar entry events; entry model

Implications: regulation of biosimilars, future spending and innovation incentives for biologic development






5) Small market-consolidating pharma mergers have large price effects but other mergers have minimal effects

Paper: Mergers that Matter: the Impact of M&A Activity in Prescription Drug Markets (w/ Thomas Hwang, Yunjuan Liu, and Luca Maini)

Methodology: diff-in-diff/matching; exploiting regulatory discontinuities

Implications: regulators are currently doing a good job preventing significant inflationary effects of mergers; cross-market effects appear to be minimal because drug companies are not negotiating over their entire portfolio





Ongoing work