Dana P. Goldman and Geoffrey F. Joyce
With recent increases in pharmacy spending, pharmacy benefit managers and health plans have adopted benefit changes designed to reduce pharmaceutical use or steer patients to less expensive alternatives. The rapid proliferation of mail-order pharmacies, mandatory generic substitution, co-insurance plans, and multitiered formularies have transformed the benefit landscape. This article focuses on how the salient cost-sharing features of prescription drug benefits may affect access to prescription drugs and what is known about how these features may affect medical spending and health outcomes. The evidence suggests that some patients, including the chronically ill, are very responsive to the cost-sharing arrangements in prescription drug plans. And for certain conditions, the evidence clearly indicates that more cost-sharing is associated with increased use of other medical services such as hospitalizations and emergency department visits. These findings make benefit design an important public health tool for improving population health.
E. Andrew Boyd
In 2009, health care expenditures in the United States totalled $2.5 trillion – $8,086 for every person, and 17.6 per cent of the US gross domestic product. Payment to hospitals amounted to $759 billion and represented the single largest expenditure in the health care system, outpacing number two – physician and clinical services – by more than $250 billion. Hospital payments alone account for over 5 per cent of the US gross domestic product. This article provides an overview of the issues and processes necessary for understanding pricing in the US health care system in general, and hospital pricing in particular. It discusses the health care environment and the role of hospitals, the flow of payment for rendered services, the motivations of the parties involved, what hospitals sell and how they sell it, and pricing and quantitative analytics.
Mark V. Pauly
This article discusses the conceptual, theoretical, and empirical research on insurance coverage for drugs in the context of a comparison with this idealized model. Deviations from it include (but are not limited to) the inability of insurers to determine and make benefit payments based on an objective health state, the absence of uniform predetermined prices, insurance policies that cover only certain products (e.g., drugs) or that take account only of current-period costs, imperfect information for consumers and providers about what the marginal benefits from drugs and other treatments really are, and the possibility of income effects from benefit payments or coverage per se.
James F. Burgess Jr. and Andrew Street
This article describes econometric approaches to comparing the efficiency of health care organizations. It deals with organizational performance measurement by first formulating a principal-agent model in which a regulator (principal) delegates responsibility to health care organizations (agents) to advance a subset of overall health sector objectives. Both effort and efficiency have to be estimated indirectly, after taking account of measurable phenomena, such as inputs, outputs, and constraints on the production process. This article considers four issues fundamental to the development of an efficiency model in an economic context, regarding appropriate unit of analysis, relevant system outputs, and constraints on the production process. This is followed by a review of the main analytical techniques used to assess efficiency, namely, stochastic frontier analysis and data envelopment analysis. Finally, it concludes that despite the challenges in measuring and comparing organizational performance, considerable analytical advances allow greater confidence to be placed in the results of analysis.
Ernst R. Berndt and Joseph P. Newhouse
This survey article on pricing and reimbursement in US pharmaceutical markets first presents a theoretical framework for pricing of branded pharmaceuticals, initially without and then in the presence of prescription drug insurance, noting how the common designs of the insurance policy, co-insurance and co-payments, affect prices and utilization. It treats the pricing of generic drugs as a limiting case. It next provides information on important federal legislation, distribution channel logistics, definitions of alternative price measures, historical developments, and reasons why price discrimination is prevalent among branded pharmaceuticals. It then summarizes long-term trends in co-payments and co-insurance for retail and mail order purchases, and describes the average percentage discounts off Average Wholesale Price paid by third-party payers to pharmacy benefit managers as well as average dispensing fees and generic penetration rates. The article concludes with a summary of how the 2006 implementation of the Medicare Part D benefits affected pharmaceutical prices and utilization and comment on the recent entry of large retailers such as Wal-Mart into domains traditionally dominated by large retail chains and the “commoditization” of generic drugs.
Joseph A. DiMasi and Henry G. Grabowski
This article reviews the extensive literature on R&D costs and returns. The first section focuses on R&D costs and the various factors that have affected the trends in real R&D costs over time. The second section considers economic studies on the distribution of returns in pharmaceuticals for different cohorts of new drug introductions. It also reviews the use of these studies to analyze the impact of policy actions on R&D costs and returns. The final section concludes and discusses open questions for further research.
Public human resource policies are motivated by market failures that prevent equal access to education and training and lead to too low investments in skills. The market failures also limit the supply of information about human resources—and, thus, transparency. At the same time, the dynamics of learning impose strong requirements on information, for planning and evaluation purposes. Five aspects of human resource policy relevant for transparency are considered: efficiency and equity, input utilization, learning outcomes, the dimensioning of education, and benefits and costs. The chapter shows that there need not be a tradeoff between equity and efficiency and argued that input use transparency should focus on the teachers. Regarding learning outcomes, needs for better information are identified in the tails of the age distribution. Suggestions for enhanced transparency concern, inter alia, improved benefit–cost analyses through better estimates of educational externalities and extended policy accountability through initial commitment to effect evaluations.