Discounts Shift the Demand Curve for Life-Saving Medications

Abstract

Pharmaceutical pricing in the United States varies, and patients often do not know the out-of-pocket costs of their medications until arriving at the pharmacy to retrieve their prescriptions. In recent years, these pharmacy-counter interactions have seen the introduction of copay cards: manufacturer-issued coupons that are sent directly to pharmacies, physicians, and patients to reduce patient out-of-pocket costs. We exploit a unique data set containing transactions from ∼85 percent of all US pharmacies to estimate the causal effect of copay card discounts on pick-up rates of life-saving medications. Holding actual final price constant, we find that the presence of copay cards increases pick-up rates, providing evidence that discounts shift the demand curve itself.

Keywords: transaction utility, demand curve shift, consumer behavior, pharmaceuticals

JEL Classification: D01, D91, I12