NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sean D. Sullivan

Pharmaceutical Outcomes Research
and Policy Program
Department of Pharmacy
1959 Pacific St NE
Box 357631
Seattle, WA 98195

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NBER Working Papers and Publications

June 2016Price Elasticities of Pharmaceuticals in a Value-Based-Formulary Setting
with Kai Yeung, Anirban Basu, Ryan N. Hansen: w22308
Ever since the seminal RAND Health insurance experiment (HIE) was conducted, most health care services, including pharmaceuticals, are deemed to be price inelastic with price elasticities of demand (PED) close to -0.20. However, most studies of PED exploit natural experiments that change demand prices for multiple components of health care. Consequently, these experiments usually do not produce estimates for the true own-price elasticities of demand but rather composite own-price elasticities that are driven by concomitant price changes to their substitutes and complements. Hence, an estimate of price elasticity is expected to vary based on the setting in which it was estimated, and likely not be applicable to other settings. In this work, exploiting a natural experiment of exogenous polic...
 
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