Marketing Status and Brand-Name Drug Prices: Evidence From Rx-To-OTC Switch

Abstract

This study examines the impact of marketing status on brand-name pricing by exploiting Prescription to over-the-counter (Rx-to-OTC) switches between 2001 and 2016. Using a Stacked difference-in-differences design, we find that the retail prices of brand-name drugs reduce substantially following an Rx-to-OTC switch, while accounting for potential confounding factors related to patent expiration and generic entry. We show that the reduction in branded prices is primarily driven by increases in patient price elasticity in the OTC market. These results highlight the need to improve patient price sensitivity to address the rising prices of brand-name prescription drugs in the United States, especially those with characteristics similar to over-the-counter drugs.