What Motivates Physician Decision-Making? Evaluating Prescription Practices of Blockbuster Drugs in the Years Following Patent Expiration

Abstract

This thesis uses data from the 2002-2009 National Ambulatory Medical Care Survey (NAMCS) to examine frictions in physician prescription practices within the U.S. healthcare system. Most notably, my findings indicate the physicians do not weigh patient and third party costs equally, suggesting moral hazard in insurance. In addition, uptake of generics appears to be gradual, likely because of physician switching costs or lack of full information on drug costs or availability. Prescription decisions are also influenced by physician convenience and cognitive limitations: I use length of drug names as a measure for physician ease and find that shorter brand names increase brand loyalty and decrease the use of generics. There is some evidence that the entry of generics induces physicians to switch toward a drug and away from medically similar but chemically distinct substitutes, but this effect is small in magnitude. Taken together, these results suggest that physicians are limited by bounded rationality when making prescription decisions. Restructuring prescription decisions at the patient level has the potential for substantial cost savings to the healthcare system without a large loss in the quality of care.