IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v14y2005i3p729-753.html
   My bibliography  Save this article

The Impact of a Three‐Tier Formulary on Demand Response for Prescription Drugs

Author

Listed:
  • Haiden A. Huskamp
  • Richard G. Frank
  • Kimberly A. McGuigan
  • Yuting Zhang

Abstract

A large number of health plans and employers have adopted three‐tier prescription drug formularies in an effort to control rising prescription drug costs. We assessed the behavioral response to three‐tier adoption by estimating econometric models of the probability of selecting drugs assigned to the third tier with the highest co‐payment requirement and changes in expected out‐of‐pocket (OOP) spending. We concluded that implementation of the three‐tier formulary resulted in some shifting of costs from the plan to enrollees and some bargaining power gained for the payer, with plan savings from manufacturer rebates a likely result.

Suggested Citation

  • Haiden A. Huskamp & Richard G. Frank & Kimberly A. McGuigan & Yuting Zhang, 2005. "The Impact of a Three‐Tier Formulary on Demand Response for Prescription Drugs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(3), pages 729-753, September.
    • Handle: RePEc:bla:jemstr:v:14:y:2005:i:3:p:729-753
    DOI: 10.1111/j.1530-9134.2005.00080.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1530-9134.2005.00080.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1530-9134.2005.00080.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Sara Ellison Fisher & Iain Cockburn & Zvi Griliches & Jerry Hausman, 1997. "Characteristics of Demand for Pharmaceutical Products: An Examination of Four Cephalosporins," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 426-446, Autumn.
    2. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-277, June.
    3. Fiona Scott Morton, 1997. "The Strategic Response by Pharmaceutical Firms to the Medicaid Most-Favored-Customer Rules," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 269-290, Summer.
    4. Manning, Willard G., 1998. "The logged dependent variable, heteroscedasticity, and the retransformation problem," Journal of Health Economics, Elsevier, vol. 17(3), pages 283-295, June.
    5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    6. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    7. Manning, Willard G. & Marquis, M. Susan, 1996. "Health insurance: The tradeoff between risk pooling and moral hazard," Journal of Health Economics, Elsevier, vol. 15(5), pages 609-639, October.
    8. Leibowitz, Arleen & Manning, Willard G. & Newhouse, Joseph P., 1985. "The demand for prescription drugs as a function of cost-sharing," Social Science & Medicine, Elsevier, vol. 21(10), pages 1063-1069, January.
    9. Duan, Naihua, et al, 1983. "A Comparison of Alternative Models for the Demand for Medical Care," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 115-126, April.
    10. Dranove, David, 1989. "Medicaid Drug Formulary Restrictions," Journal of Law and Economics, University of Chicago Press, vol. 32(1), pages 143-162, April.
    11. Manning, Willard G. & Mullahy, John, 2001. "Estimating log models: to transform or not to transform?," Journal of Health Economics, Elsevier, vol. 20(4), pages 461-494, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Herr, A. & Suppliet, M., 2011. "Co-Payment Exemptions and Reference Prices: an Empirical Study of Pharmaceutical Prices in Germany," Health, Econometrics and Data Group (HEDG) Working Papers 11/18, HEDG, c/o Department of Economics, University of York.
    2. Suppliet, Moritz & Herr, Annika, 2016. "Cost-Sharing and Drug Pricing Strategies : Introducing Tiered Co-Payments in Reference Price Markets," Other publications TiSEM 6430293b-fde9-4f91-ab35-3, Tilburg University, School of Economics and Management.
    3. Christian Trudeau & Zheng Wang, 2017. "Should the most efficient firm invest in its capacity? A value capture approach," Working Papers 1706, University of Windsor, Department of Economics.
    4. Trudeau, Christian & Wang, Zheng, 2019. "Should the more efficient firm expand? A bargaining perspective," Economics Letters, Elsevier, vol. 180(C), pages 25-27.
    5. David Ridley & Kirsten Axelsen, 2006. "Impact of Medicaid Preferred Drug Lists on Therapeutic Adherence," PharmacoEconomics, Springer, vol. 24(3), pages 65-78, December.
    6. Glazer Jacob & Huskamp Haiden A. & McGuire Thomas G., 2012. "A Prescription for Drug Formulary Evaluation: An Application of Price Indexes," Forum for Health Economics & Policy, De Gruyter, vol. 15(1), pages 1-26, March.
    7. Florian Heiss & Daniel McFadden & Joachim Winter, 2010. "Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans," NBER Chapters, in: Research Findings in the Economics of Aging, pages 413-481, National Bureau of Economic Research, Inc.
    8. Suppliet, Moritz & Herr, Annika, 2016. "Cost-Sharing and Drug Pricing Strategies : Introducing Tiered Co-Payments in Reference Price Markets," Other publications TiSEM 4d692f0e-8577-4392-b413-2, Tilburg University, School of Economics and Management.
    9. Allon Zuker & Tsipi Heart & Yisrael Parmet & Nava Pliskin & Joseph S. Pliskin, 2011. "Electronic Notifications about Drug Substitutes Can Change Physician Prescription Habits," Medical Decision Making, , vol. 31(3), pages 395-404, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John Mullahy, 2015. "In Memoriam: Willard G. Manning, 1946‐2014," Health Economics, John Wiley & Sons, Ltd., vol. 24(3), pages 253-257, March.
    2. Jay Dev Dubey, 2021. "Measuring Income Elasticity of Healthcare-Seeking Behavior in India: A Conditional Quantile Regression Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(4), pages 767-793, December.
    3. Manos Matsaganis & Theodore Mitrakos & Panos Tsakloglou, 2008. "Modelling Household Expenditure on Health Care in Greece," Working Papers 68, Bank of Greece.
    4. Farrell, Susan & Manning, Willard G. & Finch, Michael D., 2003. "Alcohol dependence and the price of alcoholic beverages," Journal of Health Economics, Elsevier, vol. 22(1), pages 117-147, January.
    5. Ai, Chunrong & Norton, Edward C., 2000. "Standard errors for the retransformation problem with heteroscedasticity," Journal of Health Economics, Elsevier, vol. 19(5), pages 697-718, September.
    6. Trottmann, Maria & Zweifel, Peter & Beck, Konstantin, 2012. "Supply-side and demand-side cost sharing in deregulated social health insurance: Which is more effective?," Journal of Health Economics, Elsevier, vol. 31(1), pages 231-242.
    7. Buntin, Melinda Beeuwkes & Zaslavsky, Alan M., 2004. "Too much ado about two-part models and transformation?: Comparing methods of modeling Medicare expenditures," Journal of Health Economics, Elsevier, vol. 23(3), pages 525-542, May.
    8. Jones, A.M, 2010. "Models For Health Care," Health, Econometrics and Data Group (HEDG) Working Papers 10/01, HEDG, c/o Department of Economics, University of York.
    9. Giampiero Marra & Matteo Fasiolo & Rosalba Radice & Rainer Winkelmann, 2023. "A flexible copula regression model with Bernoulli and Tweedie margins for estimating the effect of spending on mental health," Health Economics, John Wiley & Sons, Ltd., vol. 32(6), pages 1305-1322, June.
    10. Toni Mora & Joan Gil & Antoni Sicras-Mainar, 2012. "The Influence of BMI, Obesity and Overweight on Medical Costs: A Panel Data Approach," Working Papers 2012-08, FEDEA.
    11. Keane, Michael & Stavrunova, Olena, 2016. "Adverse selection, moral hazard and the demand for Medigap insurance," Journal of Econometrics, Elsevier, vol. 190(1), pages 62-78.
    12. Toni Mora & Joan Gil & Antoni Sicras-Mainar, 2015. "The influence of obesity and overweight on medical costs: a panel data perspective," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 16(2), pages 161-173, March.
    13. van Doorslaer, Eddy & Wagstaff, Adam & van der Burg, Hattem & Christiansen, Terkel & De Graeve, Diana & Duchesne, Inge & Gerdtham, Ulf-G & Gerfin, Michael & Geurts, Jose & Gross, Lorna, 2000. "Equity in the delivery of health care in Europe and the US," Journal of Health Economics, Elsevier, vol. 19(5), pages 553-583, September.
    14. Ciani Emanuele & Fisher Paul, 2019. "Dif-in-Dif Estimators of Multiplicative Treatment Effects," Journal of Econometric Methods, De Gruyter, vol. 8(1), pages 1-10, January.
    15. Manning, Willard G. & Mullahy, John, 2001. "Estimating log models: to transform or not to transform?," Journal of Health Economics, Elsevier, vol. 20(4), pages 461-494, July.
    16. Galina Besstremyannaya, 2012. "Estimating income equity in social health insurance system," Working Papers w0172, New Economic School (NES).
    17. Hao Yu, 2017. "China’s medical savings accounts: an analysis of the price elasticity of demand for health care," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(6), pages 773-785, July.
    18. Cantoni, Eva & Ronchetti, Elvezio, 2006. "A robust approach for skewed and heavy-tailed outcomes in the analysis of health care expenditures," Journal of Health Economics, Elsevier, vol. 25(2), pages 198-213, March.
    19. R. Kleef & K. Beck & W. Ven & R. Vliet, 2007. "Does risk equalization reduce the viability of voluntary deductibles?," International Journal of Health Economics and Management, Springer, vol. 7(1), pages 43-58, March.
    20. Lin, Tsui-Fang, 2008. "Modifiable health risk factors and medical expenditures - The case of Taiwan," Social Science & Medicine, Elsevier, vol. 67(11), pages 1727-1736, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:14:y:2005:i:3:p:729-753. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.