Pharmaceutical Prescriptions and Reference Points: Using Default Rules to Incentivize the Use of Generic Drugs

Abstract

Pharmaceutical spending is in many countries the second largest family expenditure, after food. No one questions that pharmaceutical companies invest large sums in research and the development of new and better pharmaceutical drugs. Originators are protected by patents and sold in monopolistic conditions. However, once generics enter the market, they provide people with an equally safe and effective alternative to protect their health. Nonetheless, some doctors keep on prescribing originators after the entry of generics. Some jurisdictions control this by mandating doctors to prescribe the generic drug; other countries mandate pharmacists to deliver the generic medicine. However, some countries merely rely on people’s freedom to choose, by allowing doctors to prescribe the originator product and letting patients substitute the prescribed medicine for a cheaper one at the pharmacy. This work tests whether people tend to stick to the medicine doctors prescribe, despite the availability of a cheaper generic. To this end, I ran a survey-experiment on Amazon Mechanical Turk, presenting a hypothetical scenario in which the respondents had to choose between an innovator medicine and its generic form to treat two different medical conditions. I used a between-subjects approach to compare the respondents’ self-reported purchase intention, manipulating what medicine was prescribed by the doctor, whether the doctor conveyed substituting the originator for the generic was fine, and whether the respondent had to treat a mild disease or a severe one. The results show that, at least for mild diseases, pro-originator defaults lead to stickiness (compared to pro-generic defaults). This is a prescriptive claim that casts doubt on the effectiveness of liberal policies that intend to encourage the use of generics by just allowing people to substitute the prescribed originator for a generic. On a normative level, it is hard to appraise the endogeneity of people’s preferences to the default. But by considering people’s purchase intention for a more expensive product over a cheaper substitute as a mistake, we can derive the normative basis to favor pro-generic defaults or even mandatory rules favoring generics.