Scholarly Communications Project



Robert E. Howard

Master's Thesis submitted to the Faculty of the Virginia Tech in partial fulfillment of the requirements for the degree of

Master of Arts




Nancy Wentzler, Chair
William Porter
Brian Reid

April 24, 1997
Blacksburg, Virginia


Physicians often continue to prescribe brand-name drugs to their patients even when less expensive generic equivalents are available. In a 1994 study, Judith Hellerstein advances two hypotheses to explain this behavior. First, doctors may consciously conclude that certain brand-name drugs impart a relative therapeutic benefit that outweighs their higher cost. Second, physicians may choose to prescribe brand-name drugs without evidence of therapeutic superiority if neither they nor their insured patients bear the increased cost of these drugs. The second hypothesis implies that moral hazard is evident in physicians' prescribing behavior. Hellerstein's findings support neither hypothesis, but her estimation equation does not explicitly capture the effects of brand-name/generic price differentials and information diffusion on the probability of generic prescription. The author adapts Hellerstein's theoretical model to a modified estimation equation that incorporates these effects and uses it to create new estimates based on data on antimicrobial prescriptions from the 1994 National Ambulatory Medical Care Survey (NAMCS). Unexpectedly, the results appear to affirm both hypotheses. The evidence for moral hazard is particularly strong, as self-paying patients are significantly more likely than patients with Medicare or private insurance to be prescribed the generics that are cheapest relative to their brand-name counterparts. The author also finds that certain popular antimicrobial drugs such as amoxicillin and sulfamethoxazole/trimethoprim are prescribed in the same form (generic or brand-name) by most doctors to most patients. The market power exhibited by these preferred forms leads the author to conclude that they are "brands" in the economic sense.

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