Pharmaceutical Promotion and GP Prescription Behaviour

Abstract

The aim of this paper is to empirically analyse the responses by general practitioners to promotional activities for pharmaceuticals by pharmaceutical companies. Promotion can be beneficial for society as a means of providing information, but it can also be harmful in the sense that it lowers price sensitivity of doctors and it merely is a means of establishing market share, even when cheaper, therapeutically equivalent drugs are available. A model is estimated that includes interactions of promotion expenditures and prices and that explicitly exploits the panel structure of the data, allowing for drug specific effects and dynamic adjustments, or habit persistence. The data used are aggregate monthly GP prescriptions per drug together with monthly outlays on drug promotion for the period 1994-1999 for 11 therapeutic markets, covering more than half of the total prescription drug market in the Netherlands. Identification of price effects is obtained by the introduction of the Pharmaceutical Prices Act, which established that Dutch drugs prices became a weighted average of the prices in surrounding countries after June 1996. We conclude that, on average, GP drug price sensitivity is small, but adversely affected by promotion. JEL Classification: C23, D42, D61 4 5 Contents Summary 7We also find that promotion expenditures shift the demand curve outwards, indicating that a sizeable proportion of promotion efforts is about establishing or maintaining market share. A long run result we find is that if all companies increase total promotion outlays with 1% then total pharmaceutical consumption increases with about 0.2%. From this result we can, however, not conclude that the outward shift in the demand curve is socially harmful. To make such a conclusion we would need additional information, such as the optimum level of pharmaceutical consumption.Our results are robust to alternative model specifications and the exclusion of new products from the analysis.

Modeling the effects of pharmaceutical marketing

“…In particular, marketing is said to reduce price sensitivity of demand for prescription drugs, leading to negative welfare effects. So, for example, Hurwitz and Caves (1988), Rizzo (1999), and Windmeijer et al (2005) find that marketing expenditures lower price sensitivity and conclude that marketing expenditures mainly have a persuasive effect.…”

“…For example, Rizzo's (1999) model estimates the effects of promotional efforts on demand and the price elasticity of demand for antihypertensive drugs. In turn, Rizzo's model has been slightly modified in a study by Windmeijer et al (2005), which is based on De Laat et al (2002). Their study considers the following research questions: a.…”

How Can Pricing and Reimbursement Policies Improve Affordable Access to Medicines? Lessons Learned from European Countries

“…Overall, available literature on the impact of EPR is limited [41,48]. Evaluations focused on cost-containment, showing how EPR was able to contribute to savings under specific conditions [21,[58][59][60][61], whereas aspects such as availability and uptake have not been sufficiently addressed. One study showed that, using a limited sample of new patented medicines, EPR-applying countries had, in general, lower list prices than countries not using EPR [60].…”

External Referencing and Pharmaceutical Price Negotiation

“…Despite the fact that they explore several costcontainment policies as explanatory variables (therapeutic value, cost-effectiveness, and so on), it is suggestive that the dummy variable for the presence of ER is the only explanatory variable that is significant at the 5% level. Windmeijer et al (2006) measure the effects of the implementation of ER in the Netherlands. They show that this policy resulted in considerably lower prices in general.…”

“…Apart from the works by Windmeijer et al (2006) and Heuer et al (2007) Unfortunately, more than exploring the effects of ER in isolation, most empirical studies aim at determining the effect of price controls in general. The empirical implication of our model (the effects of demand size, consumer copayment, and the separation of authorization and subsidization decisions) might serve as a guide for future empirical studies on the effects of ER as a cost control policy.…”