Brooks JM, Sorofman B, Doucette W; Association for Health Services Research. Meeting.
Abstr Book Assoc Health Serv Res Meet. 1998; 15: 17-8.
College of Pharmacy, University of Iowa, Iowa City, USA.
RESEARCH OBJECTIVES: Within the constraints of market demand, pharmacies have the discretion to set the retail prices faced by cash-paying customers which include the uninsured. In healthcare, alternative theoretical models suggest that these pricing decisions may be influenced by payments from customers with mandated reimbursement levels (e.g. Medicaid). However, it can be shown that if provider resources become contrained within the relevant production range, the direction of the relationship between retail prices and mandated reimbursement levels is a function of the altruism of provider towards cash-paying customers. If altruism towards cash-paying customers dominates the profit motives of the provider, the relationship will be negative (classic cost-shifting). If profit motives dominate, the relationship will be positive. The objective of this research is two-fold. The first objective is to test whether prescription prices for cash-paying customers are influenced by Medicaid pharmacy reimbursement levels. The second objective is to investigate whether the altruism underlying pharmacy pricing decisions is influenced by mandated reimbursement levels by testing whether direction of this relationship changes over ranges of Medicaid reimbursement. STUDY DESIGN: Weighted two-stage least squares is used to estimat average retail price equations for four drug products (Dilantin, Humulin, Mevacor, and Zantac) as a function of local-area socioeconomic characteristics, retail pharmacy markey structures, managed care penetration, and linear and non-linear measure of Medicaid pharmacy reimbursements. Dependent variables in the analyses - average prices paid by cash-paying customers for these products at the 3-digit zip code level in 1994 - came from a database constructed by Source Informativs, Inc.. Independent variables came from the 1994 pharmacy census database from the National Council of Prescription Drug Programs; the Census Bureau Zip Code Summary Tape File 3B, the Bureau of Health Professions' Area Resource File; and state-level data on average Medicaid pharmacy reimbursements per recipient in 1994 and the existance of any-willing-provider laws from the National Pharmaceutical Council (1996). PRINCIPLE FINDINGS: Statistically significant negative linear relationships were found between retail prices and average Medicaid pharmacy reimbursements for Mevacor and Zantac which suggest that for these products across the range of observed Medicaid reimbursement levels, Medicaid cuts will result in higher prices for the uninsured. Significant non-linear relationships were found for Dilantin and Humulin. For these products, significant positive relationships were found over low Medicaid reimbursement levels, and significant negative relationships were found for high Medicaid reimbursement levels. These results indicate that for some products, the effect of changes in Medicaid reimbursements on retail prices varies over the observed range of Medicaid reimbursement levels. CONCLUSIONS: Our results suggest that Medicaid reimbursements affect the prices that pharmacies charge their cash-paying customers that include the uninsured. For every product we studied, at high Medicaid reimbursement levels, Medicaid cuts will result in price increases for the uninsured. For certain products, though, at low Medicaid reimbursement levels, cuts in Medicaid reimbursments will result in price decreases for the uninsured. These results suggest that initially high Medicaid reimbursement levels give pharmacies the latitude to be altruistic and subsidize their cash-paying customers. This latitude falls when Medicaid reimbursement are cut which results in price increases for cash-paying customers. When Medicaid reimbursements are initially stingy, however, it appears that for certain products, pharmacies have no choice but to set prices for their cash-paying customers at the profit-maximizing level. Under this scenario, a price cut for cash-paying customers follows from a cut in Medicaid reimbursements. IMPLICATIONS FOR POLICY, DELIVERY OR PRACTICE: Policy-makers should be aware that polices affecting Medicaid reimbursements will also affect cash-paying customers that include the uninsured. The direction of these effects are not necessarily straightforward. Paradoxically, for certain drug products, a cut in generous Medicaid reimbursement levels could hurt the uninsured, whereas a cut in stingy Medicaid reimbursements may help the uninsured.
Publication Types:
Keywords:
- Commerce
- Cost Allocation
- Health Expenditures
- Hospitals, Private
- Managed Care Programs
- Medicaid
- Medically Uninsured
- Pharmacies
- economics
- hsrmtgs
Other ID:
UI: 102234036
From Meeting Abstracts