Is Price Inflation Different for the Elderly? An Empirical Analysis of Prescription Drugs

55 Pages Posted: 20 Sep 2000 Last revised: 14 May 2008

See all articles by Ernst R. Berndt

Ernst R. Berndt

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

Iain M. Cockburn

Boston University Questrom School of Business; National Bureau of Economic Research (NBER)

Arnold M. Epstein

Harvard University - T.H. Chan School of Public Health

Zvi Griliches

(Deceased)

Douglas L. Cocks

Eli Lilly and Company, Ltd - Eli Lilly and Company, Indianapolis

Date Written: September 1997

Abstract

Using annual IMS data from 1990 to 1996, we examine empirically whether whether elderly-nonelderly price inflation differentials exist for one medical item, namely, prescription pharmaceuticals. We assess prices for Rx for Rx drugs destined for ultimate use by the elderly vs. the nonelderly at three points in the distribution chain: initial sales from manufacturers, intermediate purchases by retail pharmacies, and final sales from retail pharmacies to patients/payors. We find that at the initial point in the distribution chain, there are no differences in price inflation for the aggregate of drugs destined for use by the elderly vs. the nonelderly. At the intermediate sell-in to pharmacy distribution point, we examine antibiotics (ABs), antidepressants (ADs) and calcium channel blockers (CCBs). For ABs, since 1992 elderly price inflation is somewhat greater than for the young, reflecting in part the elderly's more intensive use of newer branded products having fewer side effects, adverse drug interactions and more convenient dosing--attributes of particular importance to the elderly. For ADs, elderly price inflation is considerably less than for the young, due in large part to the elderly's greater use of older generic products. For CCBs, elderly- nonelderly differentials are negligible. None of these differentials adjusts for variations in quality. At the final retail sell-out point, we only examine ADs. We find that since retailers obtain larger gross margins on generic than on branded products, and because the elderly are disproportionately large users of generic ADs, the elderly-nonelderly price inflation differential benefiting the elderly at the intermediate point is reduced considerably at final sale.

Suggested Citation

Berndt, Ernst R. and Cockburn, Iain M. and Epstein, Arnold M. and Griliches, Zvi and Cocks, Douglas L., Is Price Inflation Different for the Elderly? An Empirical Analysis of Prescription Drugs (September 1997). NBER Working Paper No. w6182. Available at SSRN: https://ssrn.com/abstract=225940

Ernst R. Berndt (Contact Author)

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

Room E52-452
Cambridge, MA 02142
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National Bureau of Economic Research (NBER)

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Iain M. Cockburn

Boston University Questrom School of Business ( email )

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Boston, MA MA 02215
United States
617-353-3775 (Phone)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Arnold M. Epstein

Harvard University - T.H. Chan School of Public Health ( email )

677 Huntington Avenue
Boston, MA MA 02115
United States

Zvi Griliches

(Deceased)

Douglas L. Cocks

Eli Lilly and Company, Ltd - Eli Lilly and Company, Indianapolis

Lilly Corporate Center
Indianapolis, IN 46285
United States

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