Dynamic Cost-Offsets of Prescription Drug Expenditures: Panel Data Analysis Using a Copula-Based Hurdle Model

This paper presents a new multivariate copula-based modeling approach for analyzing cost-offsets between drug and nondrug expenditures. Estimates are based on panel data from the Medical Expenditure Panel Survey (MEPS) with quarterly measures of medical expenditures. The approach allows for nonlinear dynamic dependence between drug and nondrug expenditures as well as asymmetric contemporaneous dependence. The specification uses the standard hurdle model with two significant extensions. First, it is adapted to the bivariate case. Second, because the cost-offset hypothesis is inherently dynamic, the bivariate hurdle framework is extended to accommodate dynamic relationships between drug and nondrug spending. The econometric analysis is implemented for six different groups defined by specific health conditions. There is evidence of modest cost-offsets of expenditures on prescribed drugs.

[1]  W. Pohlmeier,et al.  An inflated multivariate integer count hurdle model : an application to bid and ask quote dynamics , 2011 .

[2]  Markku Rahiala,et al.  Panel Data , 2011, International Encyclopedia of Statistical Science.

[3]  Baoping Shang,et al.  Prescription Drug Coverage and Elderly Medicare Spending , 2007 .

[4]  Wiji Arulampalam,et al.  Simplified Implementation of the Heckman Estimator of the Dynamic Probit Model and a Comparison with Alternative Estimators , 2007, SSRN Electronic Journal.

[5]  J. Doshi,et al.  Will Part D Produce Savings in Part A and Part B? The Impact of Prescription Drug Coverage on Medicare Program Expenditures , 2007 .

[6]  Y. Zhang,et al.  Do newer prescription drugs pay for themselves? A reassessment of the evidence. , 2007, Health affairs.

[7]  Pravin K. Trivedi,et al.  Copula Modeling: An Introduction for Practitioners , 2007 .

[8]  Jian Li,et al.  Substitution, Spending Offsets, and Prescription Drug Benefit Design , 2007 .

[9]  T. Philipson,et al.  Integrated Insurance Design in the Presence of Multiple Medical Technologies , 2007, The American economic review.

[10]  Andrew J. Patton.  Modelling Asymmetric Exchange Rate Dependence , 2006 .

[11]  P. Cunningham.  Medicaid cost containment and access to prescription drugs. , 2005, Health affairs.

[12]  B. Stuart,et al.  Assessing the impact of coverage gaps in the Medicare Part D drug benefit. , 2005, Health affairs.

[13]  Anirban Basu,et al.  Generalized Modeling Approaches to Risk Adjustment of Skewed Outcomes Data , 2003, Journal of health economics.

[14]  J. Doshi,et al.  Impact of prescription coverage on hospital and physician costs: a case study of medicare beneficiaries with chronic obstructive pulmonary disease. , 2004, Clinical therapeutics.

[15]  M. Solomon,et al.  Benefits and the Use of Drugs by the Chronically Ill , 2004 .

[16]  E. Luciano,et al.  Copula methods in finance , 2004 .

[17]  Murray D. Smith,et al.  On dependency in double-hurdle models , 2003 .

[18]  M. Solomon,et al.  Employer drug benefit plans and spending on prescription drugs. , 2002, JAMA.

[19]  P. Embrechts,et al.  Risk Management: Correlation and Dependence in Risk Management: Properties and Pitfalls , 2002 .

[20]  F. Lichtenberg,et al.  Are the benefits of newer drugs worth their cost? Evidence from the 1996 MEPS. , 2001, Health affairs.

[21]  Bill Ravens,et al.  An Introduction to Copulas , 2000, Technometrics.

[22]  Satishs Iyengar,et al.  Multivariate Models and Dependence Concepts , 1998 .

[23]  F. Lichtenberg.  Do (more and better) drugs keep people out of hospitals? , 1996, The American economic review.

[24]  B. Stuart,et al.  Are Prescribed and Over‐the-Counter Medicines Economic Substitutes?: A Study of the Effects of Health Insurance on Medicine Choices by the Elderly , 1995, Medical care.

[25]  Winfried Pohlmeier,et al.  An Econometric Model of the Two-Part Decisionmaking Process in the Demand for Health Care , 1995 .

[26]  Jeffrey M. Wooldridge,et al.  The Initial Conditions Problem in Dynamic, Nonlinear Panel Data Models with Unobserved Heterogeneity , 2002 .

[27]  Willard G. Manning,et al.  Choosing Between the Sample-Selection Model and the Multi-Part Model , 1984 .

[28]  C. Morris,et al.  A Comparison of Alternative Models for the Demand for Medical Care , 1983 .

[29]  Lung-fei Lee,et al.  Simultaneous Equations Models with Discrete and Censored Variables , 1981 .

[30]  D. Clayton.  A model for association in bivariate life tables and its application in epidemiological studies of familial tendency in chronic disease incidence , 1978 .

[31]  Y. Mundlak.  On the Pooling of Time Series and Cross Section Data , 1978 .

[32]  Abe Sklar,et al.  Random variables, joint distribution functions, and copulas , 1973, Kybernetika.

[33]  J. G. Cragg.  Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods , 1971 .