Pharmaceuticals Regulation

The Trade-offs of Healthcare Regulation

When a problem appears, politicians often call for more regulation. Wall Street collapses? Frank-Dodd. Health insurance doesn’t cover pre-existing conditions? PPACA. Need to protect patient privacy? HIPAA.

But are there downsides to increased regulation? A paper by Cotet and Benjamin (2013) examines just this question. In particular, they examine the welfare implications of regulations that require a face-to-face physician visit prior to prescribing pharmaceutucials. They write:

This requirement could improve health by reducing illegal access to prescription drugs. However, it reduces access to health care by making it more difficult for patients and physicians to use many forms of telemedicine. Thus, this regulation generates a trade-off between access and safety.

The authors use data from the Behavioral Risk Factor Surveillance System (BRFSS) survey and the Compressed Mortality Files compiled by the National Center for Health Statistics (NCHS) to identify the effect of the regulation on mortality. Identification of the effect of the regulation occurs because the physician visit regulation is implemented at different times in different states. The authors use a difference-in-difference approach. Because states can choose whether or not to implement the regulation, however, it can be endogenous. Thus, the authors take a further step of estimating the model on a sample of counties that have been matched on the basis of their propensity scores.
Using this approach, the author reach the following conclusions:

First, the adoption of PER led to differential effects that depend on the cause of death. The adoption of PER is associated with a 1% rise in disease-related mortality rates the equivalent of 8.5 deaths per 100,000 people, presumably because it raised the implicit cost of, and thus reduced access to, medical care. In addition, the adoption of the PER is associated with a 6.7% reduction in injury-related mortalities, the equivalent of 2.5 deaths per 100,000 people. Thus, the reduction in injury mortality is smaller than the elevation of disease-related mortality, yielding a rise in overall mortality.

The second documented effect of PER is on morbidity. Using individual-level data, we find that the adoption of PER is associated with an increase in monthly days lost to illness of approximately 0.3. This outcome represents an 18% increase in days lost and provides additional independent evidence of the adverse, albeit modest, effect of PER adoption on health outcomes.

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