Demand for pharmaceuticals

Fisher, S., I. Cockburn, Z. Griliches and J. Hausman (1997), Characteristics of demand for pharmaceutical products an examination of four cephalosporins , Rand Journal of Economics, 28, pp. 426-46. 

In short, the imperfections of the pharmaceutical market cause (a) less price sensitivity on the demand side, (b) a certain amount of market power on the supply side, and (c) demand curves that do not reflect the true social benefit. Demand for pharmaceuticals is greater and less price-elastic than it should be. The reason for this is that consumers have little price sensitivity, especially under insurance coverage. 

In the third section we analyse expected effects from a microeconomic perspective, and we discuss to what extent the neoclassical microeconomic theoiy of demand is applicable to the case of pharmaceuticals. We explore the effects of co-payment on consumption and expenditure, and how it is shared between user and insurer, but also the possible effects on the health of individuals and populations. Equity considerations are inevitably raised in this analysis. The elements on which the analysis hinges in this section are price and income elasticities of demand for pharmaceuticals the role of the doctor as an inducer of demand consumer sovereignty discontinuities in demand functions and other notable exceptions to the classical ma.rgina.1ist. theoiy of demand. These exceptions require special microeconometric models and methods. 

Furthermore, the price elasticities of demand for pharmaceuticals are likely to differ depending on individuals income. If low-income households have a more price-elastic demand, an increase in co-payment will cause them to make a proportionally larger reduction in their pharmaceutical consumption than high-income households. The same thing could happen if we make the comparison in terms of levels of health. We are faced with equity problems, to which we will return below. 

In order to evaluate the practical effects of co-payment it is essential to have access to quantifications of elasticities. The fourth section of this chapter deals with this. It is far from straightforward to obtain reliable estimates of the elasticities of demand for pharmaceuticals with respect to co-payment and price. Distinctions must be made between active ingredients, brands and generics, and between essential and non-essential drags, and substitution elasticities must be taken into account. 

To what Extent can this Theory be Applied to the Demand for Pharmaceuticals ... 

In the case of chronic processes, the patient can, at any time, take the decision to stop the treatment, as a reaction to changes in price or other variables. Whereas the econometric technique for analysing the demand for pharmaceuticals for acute processes is that of discrete choice models, here we will apply duration or survival models. In addition, the technology of drags for chronic diseases can have non-constant returns to scale. For example, the consumption of anxiolytics raises the tolerance and reduces the effect, resulting in an increase in the necessary dose. 

There are a considerable number of empirical estimates of the elasticity of demand for pharmaceuticals. Unfortunately, most of them deal with the USA, and their results cannot be completely extrapolated to the health systems of Europe. 

These considerations highlight the methodological difficulties in estimating elasticities of demand for pharmaceuticals and partly account for the extremely high variability of the results. 

In Spain the price elasticity of demand for pharmaceuticals is low, according to available estimates. Puig-Junoy26 has estimated that the figure stands... 

Lobato s work19 makes at least four contributions. First, it seeks to quantify the demand for pharmaceuticals and argues that those variables that are employed in an attempt to approximate physical consumption, such as the number of prescriptions or packages, are not useful because they sum heterogeneous units. Monetary valuation presents the problem (considered below) of what price indexes are to be applied as deflators when studying the evolution of demand and expenditure over time. 

Another important contribution of this work is that it reminds us that medicines are means of production that are combined with others in a production function, and that therefore the demand for them is derived from the demand for health care, which is determined by the increase in income. Thus, it is not the demand for pharmaceuticals that should be regulated but the demand for health services as a whole. Moreover, the derived demand for pharmaceuticals depends not only on the demand for health care services but also on the production functions of these services and the decisions made by doctors... 

Currently, physicians and patients determine the demand for pharmaceuticals and employers and insurers assume the risk and cost. As the price of new health care technologies escalates, payers will design and implement strategies to share risk and cost. Defined employer contributions, increased patient cost sharing, and benefit exclusions will be used to help control utilization and cost. In this environment, value-based assessments will be crucial to the adoption of any technological innovation. It is reasonable to expect public and private coverage for new therapies if evidence is provided regarding the costs and consequences of treatment. However, social and ethical dilemmas will certainly arise as therapies whose costs exceed their benefits are debated in the public arena. 

Wosinska, Marta. 2002. Just What the Patient Ordered Direct-to-Consumer Advertising and the Demand for Pharmaceutical Products. Harvard Business School, Marketing Research Paper Series, No. 02-04. 

The need and demand for pharmaceutical care can be expected to intensify as sociefy realizes fhaf a significanf proportion of drug-related morbidity and mortality is preventable. In 1995, it was widely disseminated that drug-related morbidity and mortality cost the U.S. 76 billion annually, and more recent estimates place this figure close to 200 billion annually. Furthermore, 44,000 to 98,000 institutionalized patients fall victim to drug-relafed mortality." It is... 

Although many health systems are decentralizing, some aspects of the health system are often handled more efficiently at a central level. Approval for a list of essential pharmaceutical products and registration or licensing of pharmaceutical products are normally the responsibility of the competent authority at the national level. Centralized procurement of pharmaceutical products increases the quantity obtained under each purchase contract and usually reduces the cost of the products. Programme officials should therefore consider consolidating quality assurance procedures at the national level and pooling demands for pharmaceutical products under a common contract. 

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