Rx-to-OTC Switch: Changes in Physician and Patient Behavior

RX-TO-OTC SWITCH: CHANGES IN PHYSICIAN AND PATIENT BEHAVIOR Sarah Hoda Neyaz, Ph. D. Cornell University 2007 When Claritin (a popular allergy/antihistamine drug) and Prilosec (a popular anti-ulcer/anti-acid drug) became available over the counter (OTC), a unique situation was created in which a drug was now available OTC while close substitutes remained prescription (Rx) only. The OTC/Rx status of a drug should not affect physician recommendations for it or others in its class as no chemical change has occurred. The theory developed here to model physician incentives suggests, however, that due to several institutional features of insurance markets, such as reimbursement methods, there may be differences in the incentives faced by physicians that lead to changes in which medications are prescribed as drugs switch regulatory status. In this model, capitated physicians are expected to use the lowest cost form of treatment since they can be held financially responsible for their treatment decisions. The existence of an OTC version of a drug is also hypothesized to alter patient behavior as well. The availability of an OTC is expected to increase the likelihood that patients will self-medicate and therefore should result in fewer visits to physicians with diagnoses related to that condition. Self-treatment with OTC drugs is likely to be greater when symptoms are not very severe. Consequently, it is also hypothesized that after the OTC drug is available those who do see a physician will manifest more severe symptoms. To test the theory empirically the National Ambulatory Medical Survey for the years 1997-2004 is utilized. The analysis shows that when a drug in a class becomes available in the OTC market, fewer patients visit physicians for the related diagnoses and the severity of ailments of patients visiting physicians does seem to change somewhat after the availability of OTC medication. There is some evidence that physicians change their prescribing behavior, when a drug moves from prescription to OTC. In both the allergy and acid reflux markets, capitated physicians are found to utilize the least costly form of treatment. These physicians are found to cost shift away from the insurance company, while FFS cost shift away from the patient. Finally, both the allergy and acid reflux classes show some evidence of brand loyalty for drugs amongst patients