Pharmaceuticals Physician Compensation Supply of Medical Services

Patient Demand and Overuse of Prescription Drugs

The concept of moral hazard is well-known. If patients pay a small share of drug or other medical cost, they may decide to overuse such services. Physicians, however, may also have an incentive to overprescribe if either their reimbursement is tied to prescriptions written. For instance, CMS pays physicians 103% of wholesale acquisition cost (WAC) for any physician administered drugs; thus reimbursement to physicians increases with WAC. Over-prescription may also be preferred by physicians if patients often complain if they do not receive their preferred treatment. Unhappy patients may take up physician’s time or they may decide to leave to be treated at another practice.

One key question is how patient and physician preferences for / against overuse of drugs interact. That is the topic a paper in AEJ:Applied Economics by Lopez et al. (2022) aims to investigate. The investigate the cases of antimalarial treatment in Mali.

…patients should only be prescribed an antimalarial if they have a positive malaria test…The vast majority of malaria patients present with “simple” or “uncomplicated” malaria, which should be treated with artemisinin combination therapy (ACT) tablets. A small share of patients present with “severe” malaria, which requires more intensive (and expensive) medication, usually delivered via injection or IV drip.  We document widespread overuse of antimalarials even though diagnostic tests are readily available: in our control group, 58 percent of malaria-negative patients received an antimalarial prescription, and 41 percent of these prescriptions were for severe malaria treatment.

The authors aim to examine whether discount “vouchers” lead to more overuse and whether asymmetric information about the availability of these vouchers affects overuse. Specifically, the authors conduce an experiment with over 2,000 patients who visited 60 public-sector health clinics in Bamako Mali. The experimental design is as follows:

On “Patient Voucher” days, all acutely ill patients visiting the health clinic were given a voucher. On “Doctor Voucher” days, the same vouchers were given to providers to dispense at their discretion. This means the health care provider could choose to make simple treatment more attractive to the patient by revealing the voucher.

In theory, who has the discount should not affect whether no prescription, prescriptions for simple vs. severe prescriptions were made.  However, if there are gatekeeping costs—in that the patients may hassle the doctor for the medicine they want—there may be a difference in the outcome of the experiment depending on who has the voucher. This is exactly what the paper finds.

…patients are 9 percentage points (35 percent) more likely to redeem a voucher on Patient as compared to Doctor Voucher days. This implies that provider and patient preferences are frequently misaligned. We also find consistent evidence that excess demand for vouchers on Patient Voucher days is driven by patients’ preferences for simple treatment.

Note that this scenario where patients are driving overuse occurs in a scenario with very clear best practices: use simple antimalaria if test positive; use IV drip only if a severe case. In the real world, patients with specific diseases may be aware of new treatments of which some physicians may not be aware. In this case, patient complaints may be welfare improving if the physician had imperfect information and the patient was able to raise awareness of new treatments. The welfare implications of the demanding patient likely depend on the information accuracy of patients and physicians. While physicians likely have superior information in most cases, patients may have some superior information in certain cases, and certainly have better information surrounding their own preferences (e.g., whether they would prefer a less effective but safer treatment compared to a more effective but less safe treatment).

Nevertheless, the experimental design by Lopez et al. (2022) is very interesting and the paper is worth a read.

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