HSM Faculty Director David B. Ridley examined how differences in drug copayments influence drug demand. He used data on branded proton pump inhibitors from 77 insurance groups over the course of 25 months between 2000 and 2002. Previous studies examined how sensitive demand is to change in copayment, but his study showed that demand is more sensitive than originally thought when competitors’ copayments decreased while a company’s own copayment increased (or vice versa). He also sought to understand how advertising affects demand for drug products. He studied data on promotional spending for anti-ulcer drugs between October 1989 and May 2002, which included detailing (marketing to physicians) and direct-to-consumer marketing. He found that although detailing is costly, it can help manufacturers offset a decrease in demand due to increased copayments. His study demonstrated that despite many concerns, private insurers may have success in contracting with manufacturers directly. The more substitutes for a given drug in the market, the more bargaining power insurers have with manufacturers, who have an incentive to offer insurers lower prices (net of rebates) to keep copayments low.
