A review of instrumental variables estimation in the applied health sciences

Health scientists often use observational data to estimate treatment effects when controlled experiments are not feasible. A limitation of observational research is non-random selection of subjects into different treatments, potentially leading to selection bias. The 2 commonly used solutions to this problem – covariate adjustment and fully parametric models – are limited by strong and untestable assumptions. Instrumental variables estimation can be a viable alternative. In this paper, I review examples of the application of IV in the health and social sciences, I show how the IV estimator works, I discuss the factors that affect its performance, I review how the interpretation of the IV estimator changes when treatment effects vary by individual, and consider the application of IV to nonlinear models.instrumental variables, treatment effects, health outcomes

Effects of 'Authorized-Generics' on Canadian Drug Prices

This paper examines how the use of ‘authorized-generics’ (AGs) influences Canadian prescription drug prices. An authorized-generic is the actual brand name drug product, manufactured by the brand firm, but sold as a generic by a licensee or subsidiary of the brand, competing with independent generics (IGs), which operate independently from the brand firm. In theory, AGs have offsetting effects on drug prices. On the one hand, AGs compete against IGs and increases in the number of generic competitors should lower prices. On the other hand, the threat of AG entry into a therapeutic market might deter entry by IGs and this would lessen competition. Moreover, brand firms might increase prices of their brand drugs to increase demand for their AG. I find that when AGs are first to enter a drug market, average drug prices drop by about 12%; average prices drop by smaller amounts, the larger the AG share of the generic market. I could not directly assess whether the threat of AG entry into a market might deter entry by IGs. IG executives, however, state that the threat of AG entry has decreased their incentive to challenge ‘marginal’ drug markets. In particular the threat of AG entry has increased from $5m to$10m the threshold market size – the value of brand drug sales in the 10th year that it has been on the market, below which the IG firm will not attempt to enter. IG executives also stated that AGs have seriously reduced IG retained earnings. The reduction in retained earnings has hampered their ability to challenge brand drugs with annual sales well above $10m, but which have particularly high entry costs. Finally, the IG executives claimed that brand firms have attempted to use the threat of AG entry to negotiate agreements with the IG to delay entry (or not enter at all). A comprehensive evaluation of the competitive effects of AGs would need to verify and quantify these costs and compare these to the benefits of AG competition.authorized-generic drugs, independent generic drugs, drug prices, Canada

Patents, Public-Private Partnerships or Prizes – How should we support pharmaceutical innovation?

The question as to how society should support pharmaceutical (‘pharma’) innovation is both pertinent and timely: Pharma drugs are an integral component of modern health care and hold the promise to treat more effectively various debilitating health problems. The productivity of the pharma R&D enterprise, however, has declined since the 1980s. Many observers question whether the patent system is conducive to pharma innovation and point to several promising alternative mechanisms. These mechanisms include both ‘push’ programs – subsidies directed towards the cost of pharma R&D – and ‘pull’ programs – lumpsum and royalty-based rewards for the outputs of pharma R&D, that is, new drugs. I review evidence why our current system of pharma patents is defective and outline the various alternative mechanisms that may spur pharma innovation more effectively.Pharmaceuticals, R&D, patents, prizes, innovation

How should we support pharmaceutical innovation?

The question as to how society should support pharmaceutical (‘pharma’) innovation is both pertinent and timely: Pharma drugs are an integral component of modern health care and hold the promise to treat more effectively various debilitating health problems. The rate of pharma innovation, however, has declined since the 1980s. Many observers question whether the patent system is capable of providing the appropriate incentives for pharma innovation and point to several promising alternative mechanisms. These mechanisms include both ‘push’ programs – subsidies directed towards the cost of pharma R&D – and ‘pull’ programs – lumpsum rewards for the outputs of pharma R&D, that is, new drugs. I review evidence why our current system of pharma patents is defective and outline the various alternative mechanisms that may spur pharma innovation more effectively.Pharmaceuticals, R&D, patents, prizes, innovation

Do Drug Plans Matter? Effects of Drug Plan Eligibility on Drug Use Among the Elderly, Social Assistance Recipients and the General Population

The 1984 Canada Health Act does not require that the provinces subsidize prescription drugs. Many provinces do, however, provide categorical coverage to the elderly, social assistance recipients and others, although the generosity of coverage is highly variable. A system of parallel private insurance covers the non-elderly ineligible for social assistance. In this study, we assessed the socio-economic, health and demographic determinants of private drug insurance. We also assessed the effect of inter- provincial variations in drug insurance coverage for the elderly and low income on variations in drug insurance coverage for the elderly and low income on their drug use. In addition, using instrumental variables methods, we considered the effect of prescription drug insurance coverage status on drug use in the non-elderly population ineligible for social assistance. Consistent with the previous literature, we find that for most seniors and non-indigent, drug coverage has only minor effects on drug use. The drug use of social assistance recipients was, however, sensitive to even relatively modest copayments of $0-$6.prescription drug utilization, copayments, user fees, pharmaceutical cost control

Do Drug Plans Matter? Effects of Drug Plan Eligibility on Drug Use Among the Elderly, Social Assistance Recipients and the General Population

The 1984 Canada Health Act does not require that the provinces subsidize prescription drugs. Many provinces do, however, provide categorical coverage to the elderly, social assistance recipients and others, although the generosity of coverage is highly variable. A system of parallel private insurance covers the non-elderly ineligible for social assistance. In this study, we assessed the socio- economic, health and demographic determinants of private drug insurance. We also assessed the effect of inter-provincial variations in drug insurance coverage for the elderly and low income on variations in drug insurance coverage for the elderly and low income on their drug use. In addition, using instrumental variables methods, we considered the effect of prescription drug insurance coverage status on drug use in the non-elderly population ineligible for social assistance. Consistent with the previous literature, we find that for most seniors and non-indigent, drug coverage has only minor effects on drug use. The drug use of social assistance recipients was, however, sensitive to even relatively modest copayments of $0-$6.prescription drug utilization, copayments, user fees, pharmaceutical cost control

The life expectancy gains from pharmaceutical drugs: a critical appraisal of the literature

Several studies suggest that, on the basis of life expectancy (LE) regressions, new pharmaceutical drugs are responsible for some of the marked gains in LE observed over the last 50 years. We critically appraise these studies. We point out several modeling issues, including disentangling the contribution of new drugs from advances in disease management, changes in the distribution of health care and other confounding factors. We suggest that the studies estimates of pharmaceutical productivity are implausibly high. Some of the models have very large forecast errors. Finally, the models that we replicated were found to be sensitive to seemingly innocuous changes in specification. We conclude that it is difficult to estimate the bio-medical determinants of LE using aggregate data. Analyses using individual level data or perhaps disease specific data will likely produce more compelling results.pharmaceuticals, life expectancy, health production, treatment effects

National Catastrophic Drug Insurance Revisited: Who Would Benefit from Senator Kirby's Recommendations?

The recent "Romanow" and "Kirby" inquiries into the Canadian health care system recommended a publicly funded catastrophic prescription drug insurance program to protect Canadians from potentially ruinous drug costs. While the Romanow commission was not specific about the nature of such a program, the Kirby commission recommended that household prescription drug expenses be capped at 3% of total household income, or $1,500 per household member, whichever is lower, with government picking up the remainder. Using recent survey data on household spending, we estimate how the program would assist households of different means and ages, residing in different regions of the country. We find that, despite the fact that senior and low income non-senior households are the primary beneficiaries of provincial government drug plans, average subsidies would be over 4 times higher for these households than for all other (non-senior, non-indigent) households. A small percentage of other households would be among the largest beneficiaries of the program. Program benefits are typically larger in provinces with less generous public coverage and tend to benefit lower income households. Program costs are estimated to be at least$461 million annually, although reductions in out of pocket drug spending will reduce medical tax credits and thereby increase tax revenues by at least $80 million. Program costs appeared to be very sensitive to increased household drug spending that might result from the program introduction.drug insurance; prescription drug expenses

National Catastrophic Drug Insurance Revisited: Who Would Benefit from Senator Kirby's Recommendations?

The recent "Romanow" and "Kirby" inquiries into the Canadian health care system recommended a publicly funded catastrophic prescription drug insurance program to protect Canadians from potentially ruinous drug costs. While the Romanow commission was not specific about the nature of such a program, the Kirby commission recommended that household prescription drug expenses be capped at 3% of total household income, or $1,500 per household member, whichever is lower, with government picking up the remainder. Using recent survey data on household spending, we estimate how the program would assist households of different means and ages, residing in different regions of the country. We find that, despite the fact that senior and low income non-senior households are the primary beneficiaries of provincial government drug plans, average subsidies would be over 4 times higher for these households than for all other (non-senior, non-indigent) households. A small percentage of other households would be among the largest beneficiaries of the program. Program benefits are typically larger in provinces with less generous public coverage and tend to benefit lower income households. Program costs are estimated to be at least$461 million annually, although reductions in out of pocket drug spending will reduce medical tax credits and thereby increase tax revenues by at least $80 million. Program costs appeared to be very sensitive to increased household drug spending that might result from the program introduction.drug insurance; prescription drug expenses

Out-of-Pocket Prescription Drug Expenditures and Public Prescription Drug Programs

Canadian household prescription drug expenditures are studied using different years of the Statistics Canada Family Expenditure Survey. Master files are used, expanding the number of available years and permitting provincial rather than regional identifiers. Nonparametric Engel curves are estimated. Difference-in-difference mean and 80th percentile regressions examine budget shares by low-income and high-income households before and after the introduction of provincial prescription drug programs. The evidence is consistent with the view that unlike senior prescription drug subsidies, nonsenior prescription drug subsidies are probably more redistributive than an equal-cost proportional income transfer.Prescription drug benefits; incidence