Three Essays in Industrial Organization and Health Economics

This dissertation studies various policies in the realm of the American health care system. In Chapter 1, I investigate the design of optimal Intellectual Property (IP) policy by exploring a unique policy in the U.S. over-the-counter (OTC) pharmaceutical market. Over-the-counter (OTC) versions of prescription drugs can improve access and affordability. To incentivize firms to convert prescription (Rx) drugs to OTC status, the first firm to gain approval for OTC sales of a prescription drug (Rx) enjoys three years of market exclusivity granted by the Food and Drug Administration (FDA). Firms usually, but not always, delay OTC entry until the end of their Rx patent protection. This paper studies how the FDA provision of market exclusivity affects firms' time of entry into the OTC market and, ultimately, consumer welfare. To separate the multiple offsetting incentives in this market, I perform a structural analysis of anti-ulcer drugs, where many, but not all, molecules have been converted at varying points in their lifecycle. The model recognizes imperfect substitution between Rx and OTC drugs and allows an endogenous pricing equilibrium and dynamic OTC entry decisions. I find that OTC market exclusivity policy, which is intended to increase the number of OTC drugs, actually hurts consumers by delaying OTC entry until an Rx drug patent expires. For example, without the market exclusivity policy, AstraZeneca would have introduced Nexium OTC in 2011 instead of at patent expiry in 2014. I propose an alternative policy in which market exclusivity is preserved after patent expiration to an OTC drug that is introduced more than three years earlier than patent expiration, and find that the policy eliminates the incentive of strategic delay, and enhances consumer welfare. Chapter 2 examines the choice of dialysis clinics by dialysis patients and how capacity and various quality measures affect the choice. I leverage rich data with the detailed history of firms' capacity and quality characteristics. I find that clinic capacity is a key variable that drives the choice of ESRD patients among different dialysis clinics. Firms respond to patients' preference by allocating resources toward capacity expansion through dialysis station purchases as well as mergers and acquisitions. I provide the estimates of relative weight that patients place on capacity relative to quality, and by this decomposition, I offer a framework for evaluating the marginal returns of investment in capacity expansion versus quality improvement. In Chapter 3, which is joint work with Sam Kleiner, we study the Health Professional Shortage Area (HPSA) designation program, a federal entry-cost subsidy and financial reward program to attract and retain primary-care physicians, dentists, and mental health professionals to serve in underserved areas and to aim at alleviating geographical physician supply disparity in the United States. We exploit the quasi-exogenous variation in the HPSA designation status. Designation and withdrawal frequently occur in the same year---the in-and-out of areas provides the source for identification. Our results suggest that HPSA designation is associated with an increase in the number of primary care doctors. We also show the dynamics between the HPSA designation and the number of primary care doctors