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Empirical evidence of risk penalties for NTI Drugs

  • Elissa Philip GentryEmail author
Article
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Abstract

Drug innovations can outpace regulatory drug approval processes designed to control risk, creating heterogeneous risks among approved drugs. This paper estimates a price model for risky narrow therapeutic index (NTI) drugs. The traditional generic approval process has been criticized as insufficient to guarantee therapeutic equivalence in NTI drugs, leading to higher risks of toxicity or ineffectiveness when a patient switches from a brand-name version of an NTI to a generic version, or between generic versions. Using data from the Medical Expenditure Panel Survey, this paper finds evidence of a significant price penalty for NTI drugs. The paper also finds a smaller gap between brand-name and generic prices for NTI drugs than for non-NTI drugs, consistent with costly switching. An analysis of drug consumption bundles also supports this theory. These results show that despite the many information asymmetries and agency issues in the pharmaceutical market, there is evidence of sensitivity to risk in price and consumption behavior.

Keywords

Narrow therapeutic index drugs NTI drugs Generic substitution Drug pricing Pharmacy benefit managers PBMs Hedonic price Pharmaceuticals 

JEL Classifications

SI10 K32 

Notes

Acknowledgments

Support from ANR-Labex IAST is gratefully acknowledged. Special thanks to Tom Kniesner and W. Kip Viscusi for helpful comments and feedback.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Institute for Advanced Study in ToulouseUniversity of Toulouse CapitoleToulouseFrance

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