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sharing by changing their patterns of practice—for example, by prescribing fewer but more

intense treatments. As the patient’s agent, providers may either induce demand (to maximize

revenue) or constrain demand (in response to payment incentives such as capitation). Studies

that estimate price elasticity rarely account for provider behavior, or they include it in only the

most general terms—for example, controlling for care provided through an HMO. Failure to

control adequately for provider behavior may produce elasticity estimates that, while roughly

correct in the aggregate, may offer little insight about consumer responses to price changes in

different care environments.

B. PRESCRIPTION DRUGS

Many private and public health insurance plans have increased cost-sharing for prescription

drugs for the purpose of reducing demand overall and encouraging the substitution of lower-cost

drugs when possible. The introduction of greater cost sharing has offered researchers various

opportunities in the form of natural experiments to study the impact of greater cost sharing on the

use of prescription drugs. Nevertheless, programs that have developed more innovative cost

sharing designs—such as that in the Medicare Part D program—have had very little research

evidence to rely on.

1.

Range of Estimates

Many insurance plans use “tiers” of cost sharing to control the use of pharmaceuticals. In

general, tiered cost sharing imposes higher copayments for drugs that have generic or less costly

equivalents. A number of recent studies have investigated the effects of tiered cost sharing on

consumer behavior. All of these studies suggest that the overall demand for prescription drugs is

price-inelastic, with estimates ranging from –0.10 to –0.60, depending on the data sources used

  • (e.

    g., claims data from one employer or multiple employers) and the types of drugs considered

  • (e.

    g., any drug or a specific class of drugs).

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