A structural analysis of physician agency and pharmaceutical demand

Abstract

During the summer of 2016, Tzu Chi General Hospital, a major hospital chain in Taiwan with six branches and 3300 beds, planned to replace the 135 brand-name drugs on their formulary to generic ones. Their agenda unexpectedly caught the media's attention due to a leaked internal document prepared for pharmaceutical bidders, which mentions that their drug selection criteria "do not consider the professional feedbacks [from doctors] such as patients' reactions to the drugs or the drug efficacy." The document states that the main criteria are to select the drugs (1) with the highest differences between reimbursed price and acquisition price; (2) adopted by at least one academic medical center; and (3) earning profits equal to or greater than New Taiwan Dollar (NT$) 100,000 for the chain. 1 This profit-oriented choice of drugs highlights the physician agency problem in the pharmaceutical markets in Taiwan. Profit margin and competition with the other medical providers seems to be more important than patients' recovery in providers' prescription decisions. Similar stories were also found in the United States. For example, Meier and Thomas of The New York Times (2012) reported that insurers pay substantially high markups when physicians dispense drugs in their offices. 2 Medical providers were also found to respond to financial incentives when making prescription choices in countries like Sweden

A Qualitative Study of Health Services Costing in Indonesia

“…Regarding drug costs for patients, several factors affect the cost of drug. Based on the microeconomic concept, drug cost depend on supply demand relationship (Sofiah et al, 2022;Tang, 2023;Vega et al, 2016). Based on this concept, changes in the relationship between demand and supply will affects the price of drug product.…”