Research

Many developing countries face high pharmaceutical prices, even though multiple producers of generic versions of drugs often exist. One reason is that drug firms spend excessively on sales and marketing efforts. In this paper, we explore the effect of centralized procurement of drugs on limiting firms’ excessive marketing efforts and reducing drug prices by leveraging a policy experiment in China. Under the policy, certain generic drugs are procured via centralized auctions in pilot cities. The winning firms can directly capture large market shares without incurring high marketing costs. We find that the centralized auction effectively reduces the sales costs and prices, and the winning firms’ sales costs and marketing-related labor demand decrease significantly.

Health insurance plans often differ in coverage levels and the combinations of cost-sharing attributes to achieve that level. In this paper, I show that the proliferation of plan designs can result from distortion under asymmetric information. Though optimal risk protection requires concentrating coverage in large loss states (i.e., straight-deductible plans), lowrisk types signal by sorting into plans with more coverage for smaller losses. Standardizing plans to vary only along a single dimension may exacerbate welfare loss from asymmetric information. Consistent with the model, I show that a large variation in plan designs exists in the ACA federal exchange and that straight-deductible plans attract individuals with significantly higher ex-post medical spending and ex-ante risk scores. I calibrate the potential welfare effects of standardizing plan designs in the ACA when asymmetric information and consumer confusion exist.

Horizontal mergers are often associated with product reshuffling, which may have impor- tant anti-trust consequences. This article shows that hospitals merging with local competi- tors reposition service lines after the merger. We use hospital-level service lists data from American Hospital Association 2002 - 2012. To avoid endogenous selection into mergers, we estimate difference-in-differences models comparing hospitals merged later to those merged earlier. We find that merging hospitals eliminate duplicate services without reducing patient volumes. Hospitals within a system become more differentiated in service positioning after the merger. However, there is limited evidence that repositioning leads to significant cost reductions.

Should public health insurance be administered at the national or sub-national level? This paper examines the issue in China's public health insurance drug formulary design. Before 2019, the central government allowed provinces to design their own public insurance drug lists. We find that provincial governments favor local firms, adding these firms' drugs disproportionately more to insurance coverage, while holding local demand fixed. We illustrate that a unified national formulary could eliminate such distortions, but may induce welfare losses due to the central government's incomplete information and disregard for the heterogeneity of local demand.

This paper investigates the distortionary effects of community rating on relative prices in insurance markets with multiple products. We show that common community-rating approaches may generate counterintuitive distortions in the price differentials between plan options that run in the opposite direction as the distortions in overall price levels. We document that partial age-based community rating leads to this pattern in private health insurance exchanges in the U.S. Older individuals are subsidized overall but face marginal prices for the most generous coverage significantly above the marginal cost of that additional coverage. The distortions in these markets are large enough that older individuals often face and sometimes choose dominated options. We discuss and present simulations of the impacts of different community rating approaches on both the efficiency of plan choices and distributional outcomes.