The Economics of Coverage and Payment Policy in Pharmaceutical Markets
The papers in this session provide novel insights into the economics of the pharmaceutical industry, focusing on how supply chain structure, regulation, and insurance coverage impact equilibrium outcomes. The first paper examines the incidence effects of two types of exogenous shocks to the U.S. pharmaceutical market. Focusing on the market for prescription drugs purchased by enrollees in Medicare Part D, it estimates the impact of changes in wholesale drug prices on short- and long-run point-of-sale and out-of-pocket prices, as well as the equilibrium price effects induced by changes in coverage requirements in the Part D donut hole. In the second paper, the authors outline the theoretical and regulatory issues surrounding biosimilars. The authors document detailed patterns of market entry for the first twelve biosimilars introduced to Europe in three different drug categories. The price and share outcomes for biosimilars across European countries are dramatically different; the authors show that outcomes depend critically on the identity of the residual claimant in the procurement process. The third paper studies the effects of consumer inattention in Medicare Part D, focusing on the fact that the details of Part D actuarial equivalence requirements allow plans to pay out benefits which are a small fraction of net drug costs. The authors use estimates of the actual generosity of Part D plans as a function of net drug costs given rebates and subsidies to examine counterfactuals with a) alternative regulation of plans; and b) better-informed consumers.