Prescription drug prices for the elderly

Monthly Labor Review

Volumn 121, Issue 9, 1998, Pages 23-34

  Berndt, Ernst R ^b   Cockburn, Iain M ^b   Cocks, Douglas L ^a   Epstein, Arnold M ^c   Griliches, Zvi ^b  

^a ELI LILLY AND COMPANY   (United States)

^b NATIONAL BUREAU OF ECONOMIC RESEARCH   (United States)

^c NONE

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0002923164     PISSN: 00981818     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (55)

1. For a discussion of patterns in total acute care health expenditures by patient age group from 1953 to 1987, see David M. Cutler and Ellen Meara, "The Medical Cost of the Young and Old: A Forty Year Perspective," Paper presented at the April 1997 National Bureau of Economic Research Conference on Aging, Boulder, CO.
2. Katharine R. Levit, Helen C. Lazenby, Bradley R. Braden, Cathy A. Cowan, Patricia A. McDonnell, Lekha Sivarajan, Jean M. Stiller, Darleen K. Won, Carolyn S. Donham, Anna M. Long, and Madie W. Stewart, "National Health Expenditures, 1995," Health Care Financing Review, Fall 1996, pp. 175-214; and Katharine R. Levit, Helen C. Lazenby, Bradley R. Braden, and the National Health Accounts Team, "National Health Spending Trends in 1996," Health Affairs, January/February 1998, pp. 35-51.
3. Katharine R. Levit, Helen C. Lazenby, Bradley R. Braden, Cathy A. Cowan, Patricia A. McDonnell, Lekha Sivarajan, Jean M. Stiller, Darleen K. Won, Carolyn S. Donham, Anna M. Long, and Madie W. Stewart, "National Health Expenditures, 1995," Health Care Financing Review, Fall 1996, pp. 175-214; and Katharine R. Levit, Helen C. Lazenby, Bradley R. Braden, and the National Health Accounts Team, "National Health Spending Trends in 1996," Health Affairs, January/February 1998, pp. 35-51.
4. IMS 1996 Class of Trade Analysis and Retail Method of Payment Analysis. See Information Services Manual 1996 (Plymouth Meeting, PA, IMS America, 1996).
5. In the Consumer Expenditure Survey, consumer out-of-pocket expenditures for health insurance are the sum of employees' pretax contributions at work and direct health insurance premium payments, but employers' health insurance contributions are not included, for those are treated as a business expense.
6. For an overview discussion, see Jack E. Triplett, "What's Different About Health? Human Repair and Car Repair in National Accounts," Paper presented at the NBER-CRIW Conference on Medical Care Output and Productivity, Bethesda, MD, June 12-13, 1998; Thomas E. Getzen, "Medical Care Price Indexes: Theory, Construction and Empirical Analysis of the US Series 1927-1990," in Advances in Health Economics and Health Services Research (JAI Press, 1992), pp. 83-128; and Ernst R. Berndt, David M. Cutler, Richard G. Frank, Zvi Griliches, and Joseph P. Newhouse, "Price Indexes for Medical Care Goods and Services: An Overview," Paper presented at the NBER-CRIW Conference on Medical Care Output and Productivity, Bethesda, MD, June 12-13, 1998.
7. For an overview discussion, see Jack E. Triplett, "What's Different About Health? Human Repair and Car Repair in National Accounts," Paper presented at the NBER-CRIW Conference on Medical Care Output and Productivity, Bethesda, MD, June 12-13, 1998; Thomas E. Getzen, "Medical Care Price Indexes: Theory, Construction and Empirical Analysis of the US Series 1927-1990," in Advances in Health Economics and Health Services Research (JAI Press, 1992), pp. 83-128; and Ernst R. Berndt, David M. Cutler, Richard G. Frank, Zvi Griliches, and Joseph P. Newhouse, "Price Indexes for Medical Care Goods and Services: An Overview," Paper presented at the NBER-CRIW Conference on Medical Care Output and Productivity, Bethesda, MD, June 12-13, 1998.
8. For an overview discussion, see Jack E. Triplett, "What's Different About Health? Human Repair and Car Repair in National Accounts," Paper presented at the NBER-CRIW Conference on Medical Care Output and Productivity, Bethesda, MD, June 12-13, 1998; Thomas E. Getzen, "Medical Care Price Indexes: Theory, Construction and Empirical Analysis of the US Series 1927-1990," in Advances in Health Economics and Health Services Research (JAI Press, 1992), pp. 83-128; and Ernst R. Berndt, David M. Cutler, Richard G. Frank, Zvi Griliches, and Joseph P. Newhouse, "Price Indexes for Medical Care Goods and Services: An Overview," Paper presented at the NBER-CRIW Conference on Medical Care Output and Productivity, Bethesda, MD, June 12-13, 1998.
9. However, in constructing the BLS Medical Consumer Price Index, the out-of-pocket payments for health insurance are, in turn, distributed into payments by insurers for medical services, medical commodities, and health insurers' retained earnings. See Dennis Fixier, "The Treatment of the Price of Health Insurance in the CPI," unpublished paper (Bureau of Labor Statistics, Aug. 30, 1996; and Ina Kay Ford and Philip Sturm, "CPI revision provides more accuracy in the medical care services component," Monthly Labor Review, April 1988, pp. 17-26.
10. However, in constructing the BLS Medical Consumer Price Index, the out-of-pocket payments for health insurance are, in turn, distributed into payments by insurers for medical services, medical commodities, and health insurers' retained earnings. See Dennis Fixier, "The Treatment of the Price of Health Insurance in the CPI," unpublished paper (Bureau of Labor Statistics, Aug. 30, 1996; and Ina Kay Ford and Philip Sturm, "CPI revision provides more accuracy in the medical care services component," Monthly Labor Review, April 1988, pp. 17-26.
11. However, for several years within the 1927-46 period, year-to-year changes in the CPI were greater than those for the MCPI. See Getzen, "Medical Care Price Indexes," for a discussion.
12. For a review of literature on various BLS experimental price indexes, including a separate price index for the poor, both old and young, see Thesia I. Garner, David S. Johnson, and Mary F. Kokoski, "An experimental Consumer Price Index for the poor," Monthly Labor Review, September 1996, pp. 32-42; and Brent R. Moulton and Kenneth J. Stewart, "An Overview of Experimental U.S. Consumer Price Indexes," unpublished paper (Bureau of Labor Statistics, March 1997).
13. For a review of literature on various BLS experimental price indexes, including a separate price index for the poor, both old and young, see Thesia I. Garner, David S. Johnson, and Mary F. Kokoski, "An experimental Consumer Price Index for the poor," Monthly Labor Review, September 1996, pp. 32-42; and Brent R. Moulton and Kenneth J. Stewart, "An Overview of Experimental U.S. Consumer Price Indexes," unpublished paper (Bureau of Labor Statistics, March 1997).
14. See Dorothy P. Rice and Loucele A. Horowitz, "Trends in Medical Care Prices," Social Security Bulletin, July 1967, pp. 13-28. The excerpt, which appears on p. 28, is based on Report to the President on Medical Care Prices (Washington, U.S. Department of Health, Education and Welfare, 1967). On p. 25 of their work, Rice and Horowitz report that the December 1965-December 1966 price index growth rates ranged from 2.5 percent for cholecystectomy to 6.9 percent for prostatectomy, while the combined index for physicians' fees regularly priced for the CPI increased 7.8 percent.
15. See Dorothy P. Rice and Loucele A. Horowitz, "Trends in Medical Care Prices," Social Security Bulletin, July 1967, pp. 13-28. The excerpt, which appears on p. 28, is based on Report to the President on Medical Care Prices (Washington, U.S. Department of Health, Education and Welfare, 1967). On p. 25 of their work, Rice and Horowitz report that the December 1965-December 1966 price index growth rates ranged from 2.5 percent for cholecystectomy to 6.9 percent for prostatectomy, while the combined index for physicians' fees regularly priced for the CPI increased 7.8 percent.
16. See Garner and others, "An experimental Consumer Price Index," p. 37; and Moulton and Stewart, "An Overview," p. 18. The time costs of shopping could also differ for the elderly.
17. See Garner and others, "An experimental Consumer Price Index," p. 37; and Moulton and Stewart, "An Overview," p. 18. The time costs of shopping could also differ for the elderly.
18. See Nathan Amble and Ken Stewart, "Experimental price index for elderly consumers," Monthly Labor Review, May 1994, pp. 11-16; Charles C. Mason, "An Analysis of the Rates of Inflation Affecting Older Americans Based on an Experimental Reweighted Consumer Price Index," Report presented to the U.S. Congress, June 1988. The "overall" CPI refers to the CPI-for All Urban Consumers.
19. See Nathan Amble and Ken Stewart, "Experimental price index for elderly consumers," Monthly Labor Review, May 1994, pp. 11-16; Charles C. Mason, "An Analysis of the Rates of Inflation Affecting Older Americans Based on an Experimental Reweighted Consumer Price Index," Report presented to the U.S. Congress, June 1988. The "overall" CPI refers to the CPI-for All Urban Consumers.
20. See United States Senate Finance Committee, Final Report from the Advisory Commission to Study the Consumer Price Index (Washington, U.S. Government Printing Office, Dec. 4, 1996), pp. 58-62; and Moulton and Stewart, "An Overview," p. 21.
21. See United States Senate Finance Committee, Final Report from the Advisory Commission to Study the Consumer Price Index (Washington, U.S. Government Printing Office, Dec. 4, 1996), pp. 58-62; and Moulton and Stewart, "An Overview," p. 21.
22. In 1995 (1990), 78.9 percent (71.8 percent) of manufacturers' sales were to wholesalers, 12.1 percent (15.8 percent) were to retailers, and 4.8 percent (9.3 percent) were to hospitals. See 1997 Industry Profile (Washington, Pharmaceutical Research and Manufacturers of America, 1997), fig. 4-12, p. 30.
23. Indexed to June 1981 = 100, the PPI index values in June 1996 were 145.9, 192.6, and 221.5 for anticoagulants, antiarthritics and systemic antiinfectives, and 730.9, 605.8, and 500.5 for sedatives, CNS stimulants/antiobesity preparations, and psychotherapeutics, respectively. See Producer Price Indexes (Bureau of Labor Statistics, June 1996), table 5, p. 61.
24. For further details, see Information Services Manual 1996, ch. 11. A new prescription refers to a new script written by the physician, and is distinguished from continuing therapy.
25. Additional details on elderly-nonelderly prescription patterns are given in table 5 of Ernst R. Berndt, Iain M. Cockburn, Douglas L. Cocks, Arnold Epstein, and Zvi Griliches, "Is Price Inflation Different for the Elderly? An Empirical Analysis of Prescription Drugs," in Alan Garber, ed., Frontiers of Health Policy (Cambridge, MA, National Bureau of Economic Research, forthcoming).
26. These weights are from the BLS 1993 Cycle C sample.
27. Notice that, implicitly, we are assuming here that the old-young distribution within each therapeutic class is the same for sales from manufacturers to wholesalers, to hospitals, and to retailers. We relax this assumption in the next section.
28. For further details, see Information Services Manual 1996, chs. 20 and 41.
29. This is clearly the case for antidepressants, such as the selective serotonin reuptake inhibitors, which have similar efficacy but superior adverse interaction and side effect profiles relative to the older tricyclic antidepressants. See Ernst R. Berndt, Iain Cockburn, and Zvi Griliches, "Pharmaceutical Innovations and Market Dynamics: Tracking Effects on Price Indexes for Antidepressant Drugs," Brookings Papers on Economic Activity: Microeconomics 1996 (Washington, The Brookings Institution, 1996) for further discussion.
30. See, for example, Zvi Griliches and Iain Cockburn, "Generics and New Goods in Pharmaceutical Price Indexes," American Economic Review, December 1994, pp. 1213-32; and Berndt and others, "Pharmaceutical Innovations."
31. See, for example, Zvi Griliches and Iain Cockburn, "Generics and New Goods in Pharmaceutical Price Indexes," American Economic Review, December 1994, pp. 1213-32; and Berndt and others, "Pharmaceutical Innovations."
32. See, for example, Ernst R. Berndt, Zvi Griliches, and Joshua G. Rosett, "Auditing the Producer Price Index: Micro Evidence from Prescription Pharmaceutical Preparations," Journal of Business and Economic Statistics, July 1993, pp 251-64; Douglas Kanoza, "Supplemental Sampling in the PPI Pharmaceuticals Index," Producer Price Indexes Detailed Price Report, January 1996, pp. 8-10; Gregory G. Kelly, "Improving the PPI sample for prescription pharmaceuticals," Monthly Labor Review, October 1997, pp. 10- 17; and William Ristow, "IMS Presentation to the BLS," mimeo. (Plymouth Meeting, PA, IMS America, July 1996).
33. See, for example, Ernst R. Berndt, Zvi Griliches, and Joshua G. Rosett, "Auditing the Producer Price Index: Micro Evidence from Prescription Pharmaceutical Preparations," Journal of Business and Economic Statistics, July 1993, pp 251-64; Douglas Kanoza, "Supplemental Sampling in the PPI Pharmaceuticals Index," Producer Price Indexes Detailed Price Report, January 1996, pp. 8-10; Gregory G. Kelly, "Improving the PPI sample for prescription pharmaceuticals," Monthly Labor Review, October 1997, pp. 10- 17; and William Ristow, "IMS Presentation to the BLS," mimeo. (Plymouth Meeting, PA, IMS America, July 1996).
34. See, for example, Ernst R. Berndt, Zvi Griliches, and Joshua G. Rosett, "Auditing the Producer Price Index: Micro Evidence from Prescription Pharmaceutical Preparations," Journal of Business and Economic Statistics, July 1993, pp 251-64; Douglas Kanoza, "Supplemental Sampling in the PPI Pharmaceuticals Index," Producer Price Indexes Detailed Price Report, January 1996, pp. 8-10; Gregory G. Kelly, "Improving the PPI sample for prescription pharmaceuticals," Monthly Labor Review, October 1997, pp. 10-17; and William Ristow, "IMS Presentation to the BLS," mimeo. (Plymouth Meeting, PA, IMS America, July 1996).
35. See, for example, Ernst R. Berndt, Zvi Griliches, and Joshua G. Rosett, "Auditing the Producer Price Index: Micro Evidence from Prescription Pharmaceutical Preparations," Journal of Business and Economic Statistics, July 1993, pp 251-64; Douglas Kanoza, "Supplemental Sampling in the PPI Pharmaceuticals Index," Producer Price Indexes Detailed Price Report, January 1996, pp. 8-10; Gregory G. Kelly, "Improving the PPI sample for prescription pharmaceuticals," Monthly Labor Review, October 1997, pp. 10- 17; and William Ristow, "IMS Presentation to the BLS," mimeo. (Plymouth Meeting, PA, IMS America, July 1996).
36. Successful brands introduced since 1990 with substantial use by the elderly include Floxin and Lorabid, while sales of other older brands such as Ceftin and Cipro (introduced in 1987) have also grown substantially. Further, Zithromax has once-a-day dosing that facilitates compliance by the elderly.
37. This fixed-weight procedure is not the same as that employed by BLS in its CPI for prescription drugs for a number of reasons, including the fact that the CPI uses only out-of-pocket weights, whereas weights here include retail acquisition costs for products destined for payment by cash, third-party payors, and medicaid. Moreover, the index here refers to retail acquisition costs, not retail sales to patients and other payors. A description of the BLS method for dealing with prescription drugs in the CPI is found in David L. Cleeton, Valy T. Goepfrich, and Burton A. Weisbrod, "What Does the Consumer Price Index for Prescription Drugs Really Measure?" Health Care Financing Review, Spring 1992, pp. 45-51;
38. Paul A. Armknecht, Brent R. Moulton, and Kenneth J. Stewart, "Improvements to the Food at Home, Shelter, and Prescription Drug Indexes in the U.S. Consumer Price Index," CPI Announcement - Version I (Bureau of Labor Statistics, Oct. 20, 1994). Further discussion of both of these indexes and of details regarding their empirical implementation is found in
39. Berndt, Griliches, and Rosett, "Auditing the Producer Price Index."
40. The elderly-nonelderly split for each drug is based on the average of the 1992, 1994, and 1996 NDTI values.
41. These differences are computed as growth in the BLS Producer Price Index by therapeutic class (systemic anti-infectives for antibiotics, psychotherapeutics for antidepressants, and cardiovasculars for calcium channel blockers), reported in table 2, minus growth in the "Laspeyres index, total" entries of table 4.
42. See Kelly, "Improving the PPI sample," for a discussion of the BLS'S new sampling procedures and estimates of their impacts.
43. See, for example, Berndt, Griliches, and Rosett, "Auditing the Producer Price Index"; and Berndt, Cockburn, and Griliches, "Pharmaceutical Innovations."
44. See, for example, Berndt, Griliches, and Rosett, "Auditing the Producer Price Index"; and Berndt, Cockburn, and Griliches, "Pharmaceutical Innovations."
45. Data graciously made available to us involving a third-party insurer implied an implausibly huge decline in the elderly's use of cash as a method of payment.
46. These weights are from Berndt and others, "Is Price Inflation Different for the Elderly?" table 1.
47. Data are from Berndt and others, "Is Price Inflation Different for the Elderly?" table 1.
48. See, for example, Alison Masson and Robert L. Steiner, Generic Substitution and Prescription Prices: The Economic Effects of State Drug Laws (Washington, Federal Trade Commission, Bureau of Economics, 1985); and Richart E. Caves, Michael D. Whinston, and Mark A. Hurwitz, "Patent Expiration, Entry, and Competition in the U.S. Pharmaceutical Industry," Brookings Papers on Economic Activity: Microeconomics 1991 (Washington, The Brookings Institution, 1991).
49. See, for example, Alison Masson and Robert L. Steiner, Generic Substitution and Prescription Prices: The Economic Effects of State Drug Laws (Washington, Federal Trade Commission, Bureau of Economics, 1985); and Richart E. Caves, Michael D. Whinston, and Mark A. Hurwitz, "Patent Expiration, Entry, and Competition in the U.S. Pharmaceutical Industry," Brookings Papers on Economic Activity: Microeconomics 1991 (Washington, The Brookings Institution, 1991).
50. For one well-known branded selective serotonin reuptake inhibitor, for example, the sell-in price in 1996 was $1.71 while the sell-out price, averaged over method of payment channel, was $2.06, implying a $0.35 absolute margin and a 20.5-percent percentage margin [(sell-out/sell-in)-1]. By comparison, for one of the well-known older generation tricyclic antidepressants, the sell-in price was $0.12, and the sell-out price was $0.54, implying a $0.42 absolute margin and a 350-percent percentage gross margin. Note that one would expect the percentage margin to be larger for generics, because a common dispensing fee usually is added to a lower generic acquisition price.
51. Data made available to us involving one mail-order firm showed that more than half of the prescriptions dispensed were mail ordered to patients 65 years and older.
52. For an early discussion of this issue in the "Stigler Commission" report, see Eleanore M. Snyder, "Cost of Living Indexes for Special Classes of Consumers," Staff Paper 7, in U.S. Congress, Joint Economic Activity, Government Price Statistics, Hearing before the Subcommittee on Economic Statistics of the Joint Economic Committee, Congress of the United States, 87th Congress, 1st Session, Pursuant to Sec. 5(a) of Public Law 304 (79th Congress), Part 1, Jan. 24, 1961, pp. 337-72.
53. See Robert T. Michael, "Variation Across Households in the Rate of Inflation," Journal of Money, Credit and Banking, February 1979, pp. 32-44.
54. On this, see recent unpublished research findings by David M. Cutler and Elizabeth Richardson, "Inequality in Health," unpublished paper (Cambridge, MA, National Bureau of Economic Research, 1997); and Angus M. Deaton and Christina Paxson, Health, "Income and Inequality Over the Life Cycle," unpublished paper (Princeton, NJ, Princeton University, Department of Economics, 1997).
55. On this, see recent unpublished research findings by David M. Cutler and Elizabeth Richardson, "Inequality in Health," unpublished paper (Cambridge, MA, National Bureau of Economic Research, 1997); and Angus M. Deaton and Christina Paxson, Health, "Income and Inequality Over the Life Cycle," unpublished paper (Princeton, NJ, Princeton University, Department of Economics, 1997).