Categories: Newsletter Issue 2022:1

ASHEcon Session at the AEA’s ASSA 2022 Meetings

By Sebastian Tello-Trillo

Our current president, Kate Bundorf, hosted the ASHEcon-sponsored session at this past ASSA meeting. The session occurred on Friday, January 7th. Four papers were presented under the umbrella topic of Antitrust Issues in Pharmaceutical Markets.

The first paper was titled “Competition and Collusion in the United States Generic Drug Market by Emily Cuddy. This paper won the ASHEcon student paper award last year. Check out the interview with Emily Cuddy here to read more about her, and the paper presented.

The second paper was titled “The Effects of Drug Coupons on Branded Pharmaceuticals” by Leemore Dafny, Kate Ho, Ed Kong, and David Ridley. This paper studies rebate coupons for drug copayments. There are many brand-name prescription drugs whose prices are higher than average. The manufacturers of these drugs provide copayment coupons at the point of purchase to reduce consumer cost-sharing. Medicare bans the coupons since they incentivize utilization and presumably provide no benefit to the consumer. Private insurers do not ban these coupons. This paper tried to understand if these coupons increased demand and if a ban would affect drug prices and insurance premiums. The authors find that the introduction of coupon increased demand by 15% for the commercial segment relative to Medicare Advantage. Importantly they also estimate that since the bans can affect prices, banning coupons could decrease spending by 28 percent. It is unclear if greater utilization would be harmful as coupons may increase the utilization of needed medications but could exacerbate the moral hazard. A final point of the paper is that a ban could have non-desirable distributional effects by inducing higher co-pays for patients requiring more costly drugs.

The third paper was titled “Common Agent or Double Agent? Pharmacy Benefit Managers in the Prescription Drug Market” by Rena Conti, Brigham Frandsen, Michael Powell, and James Rebitzer. Pharmacy benefit managers (PBMs) are companies that manage prescription drug benefits on behalf of health insurers payers like Medicare Part D drug plans and large employers. They have been controversial in the U.S health care market since they play a significant behind-the-scenes role in determining drug costs and patients’ access to medications. This paper assembles a model to understand the implications of having an agent such like the PBMs. In their model, PBMs are market intermediaries who also operate formularies on behalf of payers. Their model provides an important insight that the effect of PBM market power is distributional: the gains from formularies accrue to PBMs rather than consumers or drug makers. Importantly, the model also offers a framework for understanding other market institutions and possible reforms.

The fourth paper was titled “Consolidation in Prescription Drug Markets: Impact on Pricing and Access.” by Josh Feng, Thomas Hwang, Yunjuan Liu, and Luca Maini. One of the U.S drug market features is the continuous occurrence of mergers and acquisitions. This raises a key question: what happens to prices and access when a drug company is acquired? This is usually hard to answer because of data access and measurement issues: keeping track of the company that owns the marketing rights to a specific drug is complicated. This paper compiles a novel dataset that allows the authors to study the question of how an acquisition impacts prices and access. They find that all newly acquired drugs experience price growth following acquisitions. However, only those acquired by larger companies see an increase in their effective net price.