The Effect of Price Hikes and Generic Introduction on the Basal Insulin Market: A Study of Expenditure Elasticities and Quantity Demand Change

Abstract

Americans have experienced price hikes on life-saving drugs recently. Basal insulin is a life-saving drug for Type 1 and Type 2 diabetes that has experienced significant price hikes recently and diabetes patients do not have a generic option for this brand-name drug treatment. This thesis attempts to characterize the response of basal insulin users to large increases in price and generic introduction to the basal insulin drug market. Medical Expenditure Panel Survey data and Redbook Historical Pricing Data are used from 2006 to 2015. Expenditure elasticities are calculated and percentage change in quantity demanded with generic introduction is computed. To see how users of life-saving drugs compare to other prescription drug users, patients that are prescribed Synthroid are used as a ‘control’ drug group compared to basal insulin users. The results show that basal insulin users are relatively inelastic to price changes throughout the period and their inelasticity causes them to be less likely to switch to cheaper generic forms of basal insulin. Drug necessity and the complex system from pharmacy to patient create markets with consumers whose choices are restricted.