Essays on Pharmaceuticals: Firm Competition, Usage, and Pricing

Abstract

Pharmaceuticals play a crucial role in the US health care system. My dissertation consists of three chapters that examine the economics of pharmaceutical markets. In particular, I examine how firm competition, physician prescribing decisions, and price dispersion affect US consumers. In Chapter 1, I examine the role of competition in the US generic drug market in the wake of the unprecedented price spikes of the past decade, which have been linked to the collusive conduct of manufacturers. Using unsealed records of the ring’s activity, I analyze how collusion—in combination with other contemporaneous features of the market—affected upstream drug prices by estimating a model of retail drug procurement, wherein generic manufacturers submit bids to supply national pharmacies with their drugs. Estimates suggest that the collusive ring generated billions in surplus for itself over 18 months and, moreover, that the unprecedented backlog of generic drug applications at the Food and Drug Administration in this period exacerbated the situation. In Chapter 2, Janet Currie and I study how initial mental health treatment affects the outcomes of adolescents. Using a large national data base of insurance claims, we find evidence that receiving follow-up mental health treatment in the first three months after an initial episode increases health care costs over the next 24 months. Moreover, these higher costs are entirely accounted for by children who receive treatment that is not consistent with practice guidelines, and especially by those who receive drugs that raise a red-flag. Finally, in Chapter 3, I examine price dispersion in the US over-the-counter drug market. Analysis of weekly sales data over the last decade for over 4,000 drug products suggests that there is widespread price dispersion across the country, even at the granularity of the universal product code. Consistent with recent discussions of health care exceptionalism, I find evidence that much of the dispersion can be explained by preexisting theories of price dispersion, including costly consumer search, store-level amenities, and retail-chain effects.