Financial incentives and physicians' prescription decisions on the choice between brand-name and generic drugs: Evidence from Taiwan

Ya Ming Liu, Yea Huei Kao Yang, Chee Ruey Hsieh

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56 Citations (Scopus)

Abstract

This paper tests the hypothesis of whether or not financial incentives affect a physician's prescription decision on the choice of generic versus brand-name drugs within a system in which physicians prescribe and dispense drugs. By using data obtained from Taiwan and focusing on diabetic patients, our empirical results provide several consistent findings in support of the hypothesis that profit incentives do affect the physician's prescribing decision, suggesting that physicians act as imperfect agents. An important implication of our findings is that rent seeking for profit margin between the reimbursement and the acquisition price instead of reducing costs is the major driving force behind generic substitution. As a result, the providers instead of the payers or consumers reap the financial benefits of generic substitution.

Original languageEnglish
Pages (from-to)341-349
Number of pages9
JournalJournal of Health Economics
Volume28
Issue number2
DOIs
Publication statusPublished - 2009 Mar

All Science Journal Classification (ASJC) codes

  • Health Policy
  • Public Health, Environmental and Occupational Health

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