New Study Questions Administration Plan to Cut Drug Prices

CAREY ACCOUNTING EXPERT GE BAI CO-AUTHORS PAPER IN 'JAMA INTERNAL MEDICINE'

Last May, the Trump administration announced its “American Patients First” plan requiring pharmaceutical companies to reveal drug prices in their television ads. The administration described it as a “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs.”

But a new study in JAMA Internal Medicine, co-authored by a Carey Business School faculty member, disputes the plan’s premise. The study found that price disclosure in ads may indeed cut into demand for more costly drugs. However, price disclosure does not lead to reduced demand when ads include modifiers explaining that insurance coverage or other discounts would cause expensive drugs to have little or no cost to patients. 

Carey Associate Professor Ge Bai (right) and colleagues from the Johns Hopkins Bloomberg School of Public Health, Brigham Young University, and Clemson University conducted an experiment with 580 participants who were shown various ads for a fictional drug. One ad made no mention of price, while four others mentioned a low or high price. Two of these ads included language noting the possibility of no cost with insurance or coupons.

Only when the ads did not include the modifying language were the participants significantly less likely to show any interest in the expensive drug. But after seeing the ads that mentioned the chance of a reduced price, the study participants expressed an interest in the high-priced medication.

Bai, an accounting expert who has co-authored several other studies on the costs of health care, said in an interview with CNN: “This regulation has good intentions, but the design of it leaves a huge loophole, and without getting rid of it, this law will have no effect. The loophole is that pharmaceutical companies understand that modifiers work. They will do things to blunt what the administration is trying to achieve."

The study, “Consumer Responses to Price Disclosure in Direct-to-Consumer Pharmaceutical Advertising,” was published January 22, 2019, in the online edition of JAMA Internal Medicine.