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Patient Welfare and Patient Compliance: an Empirical Framework for Measuring the Benefits from Pharmaceutical Innovation

29 Pages Posted: 27 Apr 1999  

Paul B. Ellickson

University of Rochester - Simon Business School

Scott Stern

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Manuel Trajtenberg

Tel Aviv University - Eitan Berglas School of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: January 1999

Abstract

The main goal of this paper is to develop an empirical framework for evaluating the patient welfare benefits arising from pharmaceutical innovation. Extending previous studies of the welfare benefits from innovation (Trajtenberg, 1990; Hausman, 1996), this paper unpacks the separate choices made by physicians and patients in pharmaceutical decisionmaking and develops an estimable econometric model which reflects these choices. Our proposed estimator for patient welfare depends on (a) whether patients comply with the prescriptions they receive from physicians and (b) the motives of physicians in their prescription behavior. By focusing on compliance behavior, the proposed welfare measure reflects a specific economic choice made by patients. We review evidence that the rate of noncompliance ranges up to 70%, suggesting an important gulf between physician prescription behavior and realized patient welfare. Since physicians act as imperfect but interested agents for their patients, the welfare analysis based on compliance must account for the nonrandom selection of patients into drugs by their physicians. The key contribution of this paper resides in integrating the choices made by both physicians and patients into a unified theoretical framework and suggesting how the parameters of such a model can be estimated from data.

Suggested Citation

Ellickson, Paul B. and Stern, Scott and Trajtenberg, Manuel, Patient Welfare and Patient Compliance: an Empirical Framework for Measuring the Benefits from Pharmaceutical Innovation (January 1999). NBER Working Paper No. w6890. Available at SSRN: https://ssrn.com/abstract=146867

Paul B. Ellickson (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Scott Stern

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Cambridge, MA 02142
United States
617-253-3053 (Phone)
617-253-2660 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Manuel Trajtenberg

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3640 9911 (Phone)
+972 3640 9908 (Fax)

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