A Probability Approach to Pharmaceutical Demand and Price Setting: Does the Identity of the Third-Party Payer Matters for Prescribing Doctors?

31 Pages Posted: 23 Nov 2011

See all articles by Dag Morten Dalen

Dag Morten Dalen

BI Norwegian Business School - Department of Economics

Marilena Locatelli

University of Turin - Department of Economics

Enrico Sorisio

PharmaNess; University of Oslo - Centre for Technology, Innovation and Culture

Steinar Strøm

University of Oslo - Ragnar Frisch Centre for Economic Research; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: November 23, 2011

Abstract

TNF-alpha inhibitors represent one of the most important areas of biopharmaceuticals by sales, with three blockbusters accounting for 8 per cent of total pharmaceutical sale in Norway. Novelty of the paper is to examine, with the use of a unique natural policy experiment in Norway, to what extent the price responsiveness of prescription choices is affected when the identity of the third-party payer changes. The three dominating drugs in this market, Enbrel, Remicade, and Humira, are substitutes, but have had different and varying funding schemes - hospitals and the national insurance plan. A stochastic structural model for the three drugs, covering demand and price setting, is estimated in a joint maximum likelihood approach. We find that doctors are more responsive when the costs are covered by the hospitals compared to when costs are covered by national insurance.

Keywords: pharmaceuticals, discrete choice model, funding-schemes

JEL Classification: C350, D430, I180, L110

Suggested Citation

Dalen, Dag Morten and Locatelli, Marilena and Sorisio, Enrico and Strøm, Steinar, A Probability Approach to Pharmaceutical Demand and Price Setting: Does the Identity of the Third-Party Payer Matters for Prescribing Doctors? (November 23, 2011). CESifo Working Paper Series No. 3643, Available at SSRN: https://ssrn.com/abstract=1963660

Dag Morten Dalen

BI Norwegian Business School - Department of Economics ( email )

N-0442 Oslo
Norway
+47 46410774 (Phone)

Marilena Locatelli

University of Turin - Department of Economics ( email )

Lungo Dora Siena, 100A
Torino, 10156
Italy
+39 011 6703894 (Phone)
+39 011 6703895 (Fax)

HOME PAGE: http://www.de.unito.it/web/member/locatelli/personal-inf.htm

Enrico Sorisio

PharmaNess ( email )

Edificio 5
Pula, CA 09123
Italy

University of Oslo - Centre for Technology, Innovation and Culture ( email )

Oslo
Norway

Steinar Strøm (Contact Author)

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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