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Pharmaceutical Innovations and Market Dynamics: Tracking Effects on Price Indexes for Antidepressant Drugs

1996; Volume: 1996; Linguagem: Inglês

10.2307/2534748

2326-506X

Ernst R. Berndt, Iain Cockburn, Zvi Griliches, Theodore E. Keeler, Martin Neil Baily,

Pharmaceutical industry and healthcare

point, that is, prices received by producers from whomever makes the first purchase (the producer price index, PPI).These price measurement tasks are difficult ones, particularly because new goods embody scientific discoveries and technological progress; inherent difficulties exist in measuring the output of services that themselves combine goods and time, and dynamic structural and compositional changes occur in the underlying markets for production, distribution, and sale.The marketplace for health care contains all these features and presents particularly difficult challenges for price measurement.Health care expenditures represent a significant portion of gross domestic product (GDP) and are likely to become increasingly important as the U.S. population ages.The conceptual foundations for a health care-related CPI are clouded, not only because physicians typically act as agents for consumers, but also because insurance plans pay for many, but not all, health care products and services.Thus, for example, the CPI for prescription pharmaceutical products currently weights only cash payment transactions from drugstores and mail-order outlets; it excludes prescription drugs purchased by managed care plans, Medicaid, or other third parties on behalf of an individual.'Here we focus attention on the measurement of a health-care-related PPI, which, while arguably simpler than a CPI, nonetheless presents enormous measurement difficulties and obstacles.2A PPI measures changes in selling prices that domestic producers receive for their output.It is frequently used in deflating current dollar expenditures to obtain a measure of real output growth by industry.The reliability and accuracy of PPIs are therefore critical to understanding the substantial growth in health care expenditures during the last ten years.Growth rates in PPIs by industry are also used to assess inflationary pressures and pricing behavior in the health care sectors or to make international comparisons.While the PPI is an output price index for a specific industry, say, pharmaceuticals, it is also an input price index for wholesalers who in turn sell to retail drugstore chains, hospitals, mail-order 1.For further discussion, see Cleeton, Goepfrich, and Weisbrod (1992), and U. S. General Accounting Office (1996).2. For a recent discussion on problems involved in interpreting various measures of wholesale prices such as the average wholesale price (AWP, also known as "Ain't What's Paid"), see Bill Alpert, "Hooked on Drugs: Why Do Insurers Pay such Outrageous Prices for Pharmaceuticals?"Barron's, June 10, 1996, pp.15-19.Brookings Papers.Microeconomics 1996 thus these older PPI methods failed to record price declines realized by some purchasers of generic drugs.Recently the BLS announced that the May 1996 pharmaceutical PPIs would incorporate linking procedures for generic drugs that treat generics and their branded antecedents as perfect substitutes.The overall implications of this significant change are not yet clear.Our analysis of 1980-96 data in the antidepressant prescription drug marketplace provides important information on what BLS-measured price growth for antidepressants would have been had these changes been introduced earlier.We also assess the sensitivity of measured aggregate price growth to alternative linking and weighting assumptions that the BLS could have employed.Because we report findings for an entire therapeutic class, namely, antidepressants, this research extends that of Griliches and Cockburn, who provided illustrative empirical evidence concerning two systemic anti-infective drugs.6A third reason for focusing on antidepressant drugs is that they are but one component in the treatment of depression, along with psychotherapy and medical management.To some extent, psychotherapy and antidepressant drugs are substitutes for each other; indeed, controversy surrounds the extent to which managed care organizations are substituting prescription drugs for talk therapy.7The research findings reported here compose one element of a larger research effort in which we are creating a price index for the treatment of depression that incorporates both drug and talk therapy components.In this paper we begin with a background discussion on the nature of the medical condition called depression and provide a historical overview on the evolving medical understanding of psychotherapeutic drugs used for the treatment of depression.We then outline data sources and describe the changing marketplace for antidepressant drugs from 1980 to 1996, particularly new product introductions and postpatent expiration entry by generic firms.We review BLS procedures for tracking producer prices in general and antidepressant drugs in particular.We next consider issues from economic theory and then present results 6. Griliches and Cockburn (1994).7. See, for example, Carol Hymowitz and Ellen Joan Pollock, "Cost-Cutting Firms Monitor Couch Time as Therapists Fret," Wall Street Journal, July 13, 1995, p. Al; and Pollock, "Managed Care's Focus on Psychiatric Drugs Alarms Many Doctors," p. Al.For empirical evidence, see Berndt, Frank, and McGuire (forthcoming).