Insurance and the High Prices of Pharmaceuticals

Besanko, David; Dranove, David; Garthwaite, Craig

doi:10.3386/w22353

Cited by 9 publications

(11 citation statements)

References 25 publications

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“…Here, I focus on the optimal design of incentives. Besanko, Dranove, and Garthwaite (2016) analyze how coverage by insurance that offers an access value influences a monopolist's decision to price pharmaceuticals. 7 The possibility to use rebates to mitigate moral hazard is already recognized by Rubinstein and Yaari (1983).…”

Section: An Insurance Model With Two Types Of Moral Hazardmentioning

confidence: 99%

Incentivizing efficient utilization without reducing access: The case against cost‐sharing in insurance

Fels

2020

Health Economics

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Cost-sharing is regarded as an important tool to reduce moral hazard in health insurance. Contrary to standard prediction, however, such requirements are found to decrease utilization both of efficient and of inefficient care. I employ a simple model that incorporates two possible explanations-consumer mistakes and limited access-to assess the welfare implications of different insurance designs. I find cost-sharing never to be an optimal solution as it produces two novel inefficiencies by limiting access. An alternative design, relying on bonuses, has no such side effects and achieves the same incentivization. I show how the optimal design can be deduced empirically and discuss possible impediments to its implementation.

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Section: An Insurance Model With Two Types Of Moral Hazardmentioning

confidence: 99%

Incentivizing efficient utilization without reducing access: The case against cost‐sharing in insurance

Fels

2020

Health Economics

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“…For example, plans can exclude a branded version of a drug if a generic equivalent is available, and they can exclude an extended release product if an immediate-release version of the drug is covered. Besanko, Dranove, and Garthwaite (2016) maintain that mandates requiring insurance to cover certain drugs (as is the case in the Part D protected classes) allow manufacturers of the mandated drugs to capture some of the consumer surplus generated by drugs that deliver high value for a low cost (e.g., generics). The mandates result in higher pricesprices higher even than what is justified by the value of the product, in some cases.…”

Section: Literaturementioning

confidence: 99%

How protected classes in Medicare Part D influence U.S. drug sales, utilization, and price

Yarbrough

2020

Health Economics

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When the Medicare Part D prescription drug benefit was implemented in 2006, six drug classes were designated “protected classes.” Because responsibility for obtaining favorable drug prices depends on private insurers' abilities to negotiate with pharmaceutical manufacturers using the threat of formulary exclusion, the protected class designation could undermine the insurers' ability to control spending and utilization of drugs in these six classes. I estimate the effect of the protected class policy on U.S. national drug sales, utilization, and price using 2001–2010 IMS Health National Sales Perspectives data and Verispan Vector One: National data and controlling for drug and year fixed effects. I find that protected status beginning in 2006 led to $112–121 million per drug per year higher U.S. sales for drugs in protected classes relative to unprotected drugs. Greater sales were driven by the antidepressant, antipsychotic, anticonvulsant, and antineoplastic classes. Subsequent analyses on a subset of drugs reveal that increases in both price and quantity are responsible for the growth of sales in protected class drugs. These results are important for informing the recent and ongoing deliberation by the Medicare program over whether to remove several classes from protection.

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“…In the event of serious illness, the insured faces both the uncertainty of the disease and the costs of its treatment. The insured turns to the insurer to provide financial assistance and to help finance the most appropriate treatment [10]. This is all the more so in the case of cancer and oncology patients [11,12].…”

Section: The Role Of Insurancementioning

confidence: 99%

The insurability of innovative pharmaceutical cancer technologies

Greenberg

Dotan

Arazi

2020

Isr J Health Policy Res

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The scientific literature, including several papers published in the IJHPR, has raised the issue of the spiraling cost of cancer treatment, including that of cancer drugs and other technologies such as gene and cell therapies. In this perspective, we review three criteria for insurability and show that they may not be met.First, the uncertain trends in the cost of innovative pharmaceutical and other cancer technologies make the maximum possible loss per event very difficult to predict and to manage in terms of insurer solvency. Second, the uncertainty of the price, the period that a drug or other cancer care technology will be administered and the number of individuals that will need the technology makes it difficult to predict future insurance premiums and whether they will be affordable to the target population. Third, public coverage needs to be consistent with societal values. However, pressure to limit public coverage will gradually increase as the possibilities of innovative pharmaceutical cancer technologies expand, thus transferring the burden onto commercial insurance. This is a phenomenon that is virtually impossible to predict accurately, but which will certainly undermine the status of health as a social good.We conclude that the financial risk arising from the use of innovative pharmaceutical cancer technologies fails to meet the aforementioned criteria, thus raising questions as to the sustainability of commercial insurance for cancer treatment and suggesting the need for the state to take greater responsibility for covering this financial risk in the future.

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Insurance and the High Prices of Pharmaceuticals

Cited by 9 publications

References 25 publications

Incentivizing efficient utilization without reducing access: The case against cost‐sharing in insurance

Incentivizing efficient utilization without reducing access: The case against cost‐sharing in insurance

How protected classes in Medicare Part D influence U.S. drug sales, utilization, and price

The insurability of innovative pharmaceutical cancer technologies

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