应用经济学报告系列（1213-13）
Topic: National Health Insurance and Profit-Seeking Behavior in the Prescription Drug Market: Empirical Evidence from Taiwan
Speaker: Chee-Ruey Hsieh
Affiliation: Institute of Economics, Academia Sinica, Taipei, Taiwan
Time: 2:00-3:30pm, Dec. 18
Location: Room 217, Guanghua New Building
Download: CV-Hsieh

Abstract: This paper empirically estimates the magnitude and the associated determinants of profit margin that medical providers earned from the prescription drugs in the context of Taiwan’s pharmaceutical market where physicians both prescribe and dispense drugs. We first trace the difference between retail price and wholesale price to calculate the profit margins for 795 pharmaceutical products. We then empirically estimate the determinants of the profit margin to test several hypotheses regarding the prediction of the countervailing power in the pharmaceutical market. The data used in this study come from two sources: (1) the population claim data compiled by the National Health Insurance Database; and (2) price adjustment lists released by the single public payer in Taiwan.

Based on the product-level data, we find evidence that the suppliers of generic drugs tend to offer a higher price discount to medical providers than the supplier of brand-name drugs. This finding is consistent with the theoretical reasoning in several previous studies, indicating that generic firms are more likely to use the strategy of price competition by lowering the wholesale prices to gain their market share as compared with branded firms. In addition, we find that the countervailing power in the wholesale pharmaceuticals as measured by the discount rate offered by the pharmaceutical manufacturers is positively associated with the size of the market. An important implication of our study is that the profit-seeking behavior initiated by the medical provider is the engine of the competition force in the prescription drug market in Taiwan, which in turn creates financial incentives to medical providers in the choice of prescription drugs.

Keywords: Profit Margin, Profit-Seeking Behavior, Prescription Drug Market, National Health Insurance