Essays on Industrial Organization and Health Economics

Brandon J Norton, Purdue University

Abstract

This dissertation consists of three essays examining the nature of pricing in the pharmaceutical industry and the behavior of physicians prescribing drugs. I use a combination of structural modeling and reduced-form econometric techniques to illuminate how factors such as bargaining, competition, and network membership can affect prices and prescribing behavior. Ultimately, these insights can be used to influence public policy goals such as reducing prescription drug costs for patients or limiting unnecessary prescribing.In Chapter One, which is joint work with Sebastian Linde and Ralph Siebert, I focus on the determinants and effects of bargaining power on wholesale pharmaceutical drug prices. We estimate a structural bargaining model and find that large differences in bargaining power explain drug price heterogeneities across buyers, drug classes, and time periods. Our results show that transaction-specific determinants between buyers and sellers (such as transaction volume, buyer’s loyalty, multiple drug purchases from the same seller, etc.) exert strong effects on buyer bargaining power and drug prices. Our counterfactuals show that group purchasing organizations achieve price reductions that vary across drug classes and that these price reductions primarily depend on buyer price sensitivity.In the second chapter, joint with Günter Hitsch, Sebastian Linde, and Ralph Siebert, I turn to the retail prescription drug market. Here, we show that there is a significant amount of price variation for prescription drugs in the retail pharmaceutical market. Both negotiated prices (price between retail pharmacies and third-party insurers) and out of pocket prices (prices between retail pharmacies and insured patients) for a drug exhibit a high degree of price variation even when controlling for drug manufacturer, geographic location, pharmacy chain, etc. Furthermore, the nature of this price variation changes depending on if a drug is branded or generic.In the third chapter, joint with Svetlana Beilfuss and Sebastian Linde, I examine the problem of antimicrobial resistance and how physician membership in Accountable Care Organizations (ACOs) can influence antibiotic prescribing behavior. We use a two-part structural model that accounts for selection into treatment (the ACO group), and non-treatment (control group). We then compare physician antibiotic prescribing across these groups with adjustment for volume, patient, physician, and institutional characteristics. We find that ACO affiliation reduces antibiotic prescribing by about 23% per year. Furthermore, we show that failure to account for selection into treatment results in an understating of the average treatment effect.

Degree

Ph.D.

Advisors

Siebert, Purdue University.

Subject Area

Pharmaceutical sciences

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