In 2021, the Food and Drug Administration (FDA) approved the first interchangeable biosimilar for long-acting insulin, which many hoped would be substantially cheaper than the reference branded product. I explain why prices have barely changed, and argue that a regulatory or disruptive business fix is needed to bring down insulin prices. I describe one promising fix on the horizon: the announcement by a nonprofit firm, CivicaRx, to manufacture and sell its own interchangeable biosimilars, bypassing the traditional supply chain.
Leemore S. Dafny
Bruce V. Rauner Professor of Business Administration
Mary Ellen Jay and Jeffrey Jay Fellow
Bruce V. Rauner Professor of Business Administration
Mary Ellen Jay and Jeffrey Jay Fellow
Drug copayment coupons to reduce patient cost-sharing have become nearly ubiquitous for high-priced brand-name prescription drugs. Medicare bans such coupons on the grounds that they are kickbacks that induce utilization, but they are commonly used by commercially-insured enrollees. We estimate the causal effects of coupons for branded drugs without bioequivalent generics using variation in coupon introductions over time and comparing differential responses across enrollees in commercial and Medicare Advantage plans. Using data on net-of-rebate prices and quantities from a large Pharmacy Benefits Manager, we find that coupons increase quantity sold by 21-23% for the commercial segment relative to Medicare Advantage in the year after introduction, but do not differentially impact net-of-rebate prices, at least in the short-run. To quantify the equilibrium price effects of coupons, we employ individual-level data to estimate a discrete choice model of demand for multiple sclerosis drugs. We use our demand estimates to parameterize a model of drug price negotiations. For this category of drugs, we estimate that coupons raise negotiated prices by 8% and result in just under $1 billion in increased U.S. spending annually. Combined, the results suggest copayment coupons increase spending on couponed drugs without bioequivalent generics by up to 30 percent.
This JAMA Viewpoint proposes three steps the Biden administration can take to slow consolidation within health care, which has been shown to raise costs without improving service or quality: better fund federal antitrust enforcement agencies; appoint agency heads committed to enforcement; and create an interagency task force devoted to enhancing competition.
As the number of COVID-19 cases nationwide continues to grow, a number of hospitals will need to convert acute care beds into intensive care beds, and discharge stable patients to post-acute care settings such as nursing homes. In addition, nursing homes unable to care for COVID patients requiring intensive support services - or unable to isolate their COVID-positive residents - will require safe and high-quality options. We recommend designating specific nursing homes (also known as "skilled nursing facilities") to serve as "COVID-19 Skilled Care Centers" (CSSCs). Officials should identify these nursing facilities immediately, so the facilities can decline new uninfected patients and isolate/transfer uninfected longer-term residents. Download the COVID-19 Capability Scorecard (.XLSX)
The hospital industry has consolidated substantially during the past two decades and at an accelerated pace since 2010. Multiple studies have shown that hospital mergers have led to higher prices for commercially insured patients, but research about effects on quality of care is limited. Using Medicare claims and Hospital Compare data from 2007 through 2016 on performance on four measures of quality of care (a composite of clinical-process measures, a composite of patient-experience measures, mortality, and the rate of readmission after discharge) and data on hospital mergers and acquisitions occurring from 2009 through 2013, we conducted difference-in-differences analyses comparing changes in the performance of acquired hospitals from the time before acquisition to the time after acquisition with concurrent changes for control hospitals that did not have a change in ownership. We found hospital acquisition was associated with modestly worse patient experiences and no significant changes in readmission or mortality rates. Effects on process measures of quality were inconclusive.
Hospital mergers, on average, lead to higher prices and spending without observable quality improvements.
We consider the effect of mergers between firms whose products are not viewed as direct substitutes for the same good or service but are bundled by a common intermediary. Focusing on hospital mergers across distinct geographic markets, we show that such combinations can reduce competition among merging hospitals for inclusion in insurers' networks, leading to higher prices (or lower-quality care). Using data on hospital mergers from 1996 to 2012, we find support that this mechanism operates within state boundaries: cross-market, within-state hospital mergers yield price increases of 7%–9% for acquiring hospitals, whereas out-of-state acquisitions do not yield significant increases.
Branded pharmaceutical manufacturers frequently offer “copay coupons” that insulate consumers from cost-sharing, thereby undermining insurers’ ability to influence drug utilization. We study the impact of copay coupons on branded drugs first facing generic entry between 2007 and 2010. To overcome endogeneity concerns, we exploit cross-state and cross-consumer variation in coupon legality. We find that coupons increase branded sales by 60+ percent, entirely by reducing the sales of bioequivalent generics. During the five years following generic entry, we estimate that coupons increase total spending by $30 to $120 million per drug, or $700 million to $2.7 billion for our sample alone.
Leemore Dafny is the Bruce V. Rauner Professor of Business Administration at the Harvard Business School. Professor Dafny also serves on the faculties of the John F. Kennedy School of Government and the interdisciplinary Program in Health Policy.
Professor Dafny’s research examines competitive interactions among payers and providers of healthcare services, and the intersection of industry and public policy. Her work has been published in academic journals such as The American Economic Review and The New England Journal of Medicine, and featured in popular media such as The New York Times and The Wall Street Journal. Current projects include studies of prescription drug assistance and coupon programs, organizational structure of the healthcare sector, policy proposals to optimize and contain healthcare spending, and employer-sponsored health insurance.
Professor Dafny graduated summa cum laude from Harvard College and worked as a consultant with McKinsey & Company prior to earning her PhD in economics from the Massachusetts Institute of Technology. Professor Dafny is a research associate of the National Bureau of Economic Research, an associate editor of Management Science, on the editoral board of American Economic Journal: Policy, and recently completed terms on the boards of the American Society of Health Economists and the Health Care Cost Institute.
Professor Dafny’s expertise spans both the public and private sectors. She currently serves on the Panel of Health Advisers for the Congressional Budget Office. In 2012-2013, she was deputy director for healthcare and antitrust in the Bureau of Economics at the Federal Trade Commission. She also advises companies, government agencies, and nonprofits on a variety of issues including antitrust matters, strategic decisions, and public policy.
- Featured Work
-
In 2021, the Food and Drug Administration (FDA) approved the first interchangeable biosimilar for long-acting insulin, which many hoped would be substantially cheaper than the reference branded product. I explain why prices have barely changed, and argue that a regulatory or disruptive business fix is needed to bring down insulin prices. I describe one promising fix on the horizon: the announcement by a nonprofit firm, CivicaRx, to manufacture and sell its own interchangeable biosimilars, bypassing the traditional supply chain.Drug copayment coupons to reduce patient cost-sharing have become nearly ubiquitous for high-priced brand-name prescription drugs. Medicare bans such coupons on the grounds that they are kickbacks that induce utilization, but they are commonly used by commercially-insured enrollees. We estimate the causal effects of coupons for branded drugs without bioequivalent generics using variation in coupon introductions over time and comparing differential responses across enrollees in commercial and Medicare Advantage plans. Using data on net-of-rebate prices and quantities from a large Pharmacy Benefits Manager, we find that coupons increase quantity sold by 21-23% for the commercial segment relative to Medicare Advantage in the year after introduction, but do not differentially impact net-of-rebate prices, at least in the short-run. To quantify the equilibrium price effects of coupons, we employ individual-level data to estimate a discrete choice model of demand for multiple sclerosis drugs. We use our demand estimates to parameterize a model of drug price negotiations. For this category of drugs, we estimate that coupons raise negotiated prices by 8% and result in just under $1 billion in increased U.S. spending annually. Combined, the results suggest copayment coupons increase spending on couponed drugs without bioequivalent generics by up to 30 percent.
This JAMA Viewpoint proposes three steps the Biden administration can take to slow consolidation within health care, which has been shown to raise costs without improving service or quality: better fund federal antitrust enforcement agencies; appoint agency heads committed to enforcement; and create an interagency task force devoted to enhancing competition.
As the number of COVID-19 cases nationwide continues to grow, a number of hospitals will need to convert acute care beds into intensive care beds, and discharge stable patients to post-acute care settings such as nursing homes. In addition, nursing homes unable to care for COVID patients requiring intensive support services - or unable to isolate their COVID-positive residents - will require safe and high-quality options. We recommend designating specific nursing homes (also known as "skilled nursing facilities") to serve as "COVID-19 Skilled Care Centers" (CSSCs). Officials should identify these nursing facilities immediately, so the facilities can decline new uninfected patients and isolate/transfer uninfected longer-term residents. Download the COVID-19 Capability Scorecard (.XLSX)The hospital industry has consolidated substantially during the past two decades and at an accelerated pace since 2010. Multiple studies have shown that hospital mergers have led to higher prices for commercially insured patients, but research about effects on quality of care is limited. Using Medicare claims and Hospital Compare data from 2007 through 2016 on performance on four measures of quality of care (a composite of clinical-process measures, a composite of patient-experience measures, mortality, and the rate of readmission after discharge) and data on hospital mergers and acquisitions occurring from 2009 through 2013, we conducted difference-in-differences analyses comparing changes in the performance of acquired hospitals from the time before acquisition to the time after acquisition with concurrent changes for control hospitals that did not have a change in ownership. We found hospital acquisition was associated with modestly worse patient experiences and no significant changes in readmission or mortality rates. Effects on process measures of quality were inconclusive.
Hospital mergers, on average, lead to higher prices and spending without observable quality improvements.
We consider the effect of mergers between firms whose products are not viewed as direct substitutes for the same good or service but are bundled by a common intermediary. Focusing on hospital mergers across distinct geographic markets, we show that such combinations can reduce competition among merging hospitals for inclusion in insurers' networks, leading to higher prices (or lower-quality care). Using data on hospital mergers from 1996 to 2012, we find support that this mechanism operates within state boundaries: cross-market, within-state hospital mergers yield price increases of 7%–9% for acquiring hospitals, whereas out-of-state acquisitions do not yield significant increases.Branded pharmaceutical manufacturers frequently offer “copay coupons” that insulate consumers from cost-sharing, thereby undermining insurers’ ability to influence drug utilization. We study the impact of copay coupons on branded drugs first facing generic entry between 2007 and 2010. To overcome endogeneity concerns, we exploit cross-state and cross-consumer variation in coupon legality. We find that coupons increase branded sales by 60+ percent, entirely by reducing the sales of bioequivalent generics. During the five years following generic entry, we estimate that coupons increase total spending by $30 to $120 million per drug, or $700 million to $2.7 billion for our sample alone. - Journal Articles
-
- Dafny, Leemore, Christopher Ody, and Teresa Rokos. "Giving a Buck or Making a Buck? Donations by Pharmaceutical Manufacturers to Independent Patient Assistance Charities." Health Affairs 41, no. 9 (September 2022). View Details
- Dafny, Leemore S. "A Radical Treatment for Insulin Pricing." NEJM.org (April 6, 2022). View Details
- Chernew, Michael E., Maximilian J. Pany, and Leemore S. Dafny. "Two Approaches to Capping Health Care Prices." Health Affairs Forefront (March 31, 2022). View Details
- Pany, Maximilian J., Michael E. Chernew, and Leemore S. Dafny. "Regulating Hospital Prices Based on Market Concentration Is Likely to Leave High-Price Hospitals Unaffected." Health Affairs 40, no. 9 (September 2021): 1386–1394. View Details
- Dafny, Leemore S. "The Covid-19 Pandemic Should Not Delay Actions to Prevent Anticompetitive Consolidation in U.S. Health Care Markets." Promarket (June 10, 2021). View Details
- Dafny, Leemore S., Yin Wei Soon, Zoë Cullen, and Christopher T. Stanton. "How Has COVID-19 Affected Health Insurance Offered by Small Businesses in the U.S.? Early Evidence from a Survey." NEJM Catalyst (August 14, 2020). (Commentary.) View Details
- Dafny, Leemore S., and Steven S. Lee. "Designating Certain Post-Acute Care Facilities As COVID-19 Skilled Care Centers Can Increase Hospital Capacity And Keep Nursing Home Patients Safer." Health Affairs Blog (April 15, 2020). View Details
- Shen, Karen, Eric Barrette, and Leemore S. Dafny. "Treatment Of Opioid Use Disorder Among Commercially Insured U.S. Adults, 2008–17." Health Affairs 39, no. 6 (June 2020): 993–1001. View Details
- Beaulieu, Nancy Dean, Leemore S. Dafny, B. E. Landon, Jesse Dalton, Ifedayo Kuye, and J. Michael McWilliams. "Changes in Quality of Care After Hospital Mergers and Acquisitions." New England Journal of Medicine 382, no. 1 (January 2, 2020): 51–59. View Details
- Dafny, Leemore S., Katherine Ho, and Robin S. Lee. "The Price Effects of Cross-Market Mergers: Theory and Evidence from the Hospital Industry." RAND Journal of Economics 50, no. 2 (Summer 2019): 286–325. View Details
- Dafny, Leemore S. "Does It Matter If Your Health Insurer Is For Profit? Effects of Ownership on Premiums, Insurance Coverage, and Medical Spending." American Economic Journal: Economic Policy 11, no. 1 (February 2019): 222–265. View Details
- Ody, Christopher, Lucy Msall, Leemore S. Dafny, David Grabowski, and David Cutler. "Decreases In Readmissions Credited to Medicare's Program to Reduce Hospital Readmissions Have Been Overstated." Health Affairs 38, no. 1 (January 2019): 36–43. View Details
- Dafny, Leemore S. "Does CVS–Aetna Spell the End of Business as Usual?" New England Journal of Medicine 378, no. 7 (February 15, 2018): 593–595. View Details
- Dafny, Leemore S., Igal Hendel, Victoria Marone, and Christopher Ody. "Narrow Networks on the Health Insurance Marketplaces: Prevalence, Pricing, and the Cost of Network Breadth." Health Affairs 36, no. 9 (September 2017). View Details
- Dafny, Leemore S., Christopher Ody, and Matt Schmitt. "Undermining Value-Based Purchasing — Lessons from the Pharmaceutical Industry." New England Journal of Medicine 375, no. 21 (November 24, 2016): 2013–2015. View Details
- Dafny, Leemore S. "Good Riddance to Big Insurance Mergers." New England Journal of Medicine 376, no. 19 (May 11, 2017): 1804–1806. View Details
- Dafny, Leemore S., and Thomas H. Lee. "Health Care Needs Real Competition." Harvard Business Review 94, no. 12 (December 2016): 76–87. View Details
- Dafny, Leemore S., Christopher Ody, and Matt Schmitt. "When Discounts Raise Costs: The Effect of Copay Coupons on Generic Utilization." American Economic Journal: Economic Policy 9, no. 2 (May 2017): 91–123. View Details
- Dafny, Leemore S., and Thomas H. Lee. "The Good Merger." New England Journal of Medicine 372, no. 22 (May 28, 2015): 2077–2079. View Details
- Dafny, Leemore S., Igal Hendel, and Nathan Wilson. "Narrow Networks on the Health Insurance Exchanges: What Do They Look Like and How Do They Affect Pricing? A Case Study of Texas." American Economic Review: Papers and Proceedings 105, no. 5 (May 2015): 110–114. View Details
- Dafny, Leemore S., Jonathan Gruber, and Christopher Ody. "More Insurers, Lower Premiums: Evidence from Initial Pricing in the Health Insurance Marketplaces." American Journal of Health Economics 1, no. 1 (Winter 2015): 53–81. View Details
- Dafny, Leemore S. "Hospital Industry Consolidation—Still More to Come?" New England Journal of Medicine 370, no. 3 (January 16, 2014): 198–199. View Details
- Carlson, Julie, Leemore S. Dafny, Beth Freeborn, Pauline Ippolito, and Brett Wendling. "Economics at the FTC: Physician Acquisitions, Standard Essential Patents, and Accuracy of Credit Reporting." Review of Industrial Organization 43, no. 4 (December 2013): 303–326. View Details
- Dafny, Leemore S., Katherine Ho, and Mauricio Varela. "Let them Have Choice: Gains from Shifting Away from Employer-Sponsored Health Insurance and Toward an Individual Exchange." American Economic Journal: Economic Policy 5, no. 1 (February 2013): 32–58. View Details
- Dafny, Leemore S., Mark Duggan, and Subramaniam Ramanarayanan. "Paying a Premium on Your Premium? Consolidation in the U.S. Health Insurance Industry." American Economic Review 102, no. 2 (April 2012): 1161–1185. View Details
- Avraham, Ronen, Leemore S. Dafny, and Max Schanzenbach. "The Impact of Tort Reform on Employer-Sponsored Health Insurance Premiums." Journal of Law, Economics & Organization 28, no. 4 (October 2012): 657–686. View Details
- Dafny, Leemore S., David Dranove, Frank Limbrock, and Fiona Scott Morton. "Data Impediments to Empirical Work on Health Insurance Markets." B.E. Journal of Economic Analysis & Policy 11, no. 2 (2011). View Details
- Cutler, David, and Leemore S. Dafny. "Designing Transparency Systems for Medical Care Prices." New England Journal of Medicine 364, no. 10 (March 10, 2011): 894–895. View Details
- Dafny, Leemore S. "Are Health Insurance Markets Competitive?" American Economic Review 100, no. 4 (September 2010): 1399–1431. View Details
- Dafny, Leemore S., Katherine Ho, and Mauricio Varela. "An Individual Healthplan Exchange: Which Employees Would Benefit and Why?" American Economic Review: Papers and Proceedings 100, no. 2 (May 2010): 485–489. View Details
- Dafny, Leemore S. "Estimation and Identification of Merger Effects: An Application to Hospital Mergers." Journal of Law & Economics 52, no. 3 (August 2009): 523–550. View Details
- Dafny, Leemore S., and David Dranove. "Regulatory Exploitation and Management Changes: Upcoding in the Hospital Industry." Journal of Law & Economics 52, no. 2 (May 2009): 223–250. View Details
- Dafny, Leemore S., and David Dranove. "Do Report Cards Tell Consumers Anything They Don’t Already Know? The Case of Medicare HMOs." RAND Journal of Economics 39, no. 3 (Fall 2008): 790–821. View Details
- Dafny, Leemore S. "How Do Hospitals Respond to Price Changes?" American Economic Review 95, no. 5 (December 2005): 1525–1547. View Details
- Dafny, Leemore S. "Games Hospitals Play: Entry Deterrence in Hospital Procedure Markets." Journal of Economics & Management Strategy 14, no. 3 (Fall 2005): 513–542. View Details
- Dafny, Leemore S., and Jonathan Gruber. "Public Insurance and Child Hospitalizations: Access and Efficiency Effects." Journal of Public Economics 89, no. 1 (January 2005): 109–129. View Details
- Book Chapters
-
- Dafny, Leemore S. "Health Care Markets a Decade After the ACA: Bigger, but Probably Not Better." Chap. 15 in The Trillion Dollar Revolution: How the Affordable Care Act Transformed Politics, Law, and Health Care in America, edited by Ezekiel J. Emanuel and Abbe R. Gluck. New York: PublicAffairs, 2020. View Details
- Working Papers
-
- Dafny, Leemore S., Kate Ho, and Edward Kong. "How Do Copayment Coupons Affect Branded Drug Prices and Quantities Purchased?" NBER Working Paper Series, No. 29735, February 2022. View Details
- Barrette, Eric, Leemore S. Dafny, and Karen Shen. "Do Policies to Increase Access to Treatment for Opioid Use Disorder Work?" NBER Working Paper Series, No. 29001, July 2021. View Details
- Cutler, David, Leemore S. Dafny, David Grabowski, Steven S. Lee, and Christopher Ody. "Vertical Integration of Healthcare Providers Increases Self-Referrals and Can Reduce Downstream Competition: The Case of Hospital-Owned Skilled Nursing Facilities." NBER Working Paper Series, No. 28305, December 2020. View Details
- Dafny, Leemore S., David Cutler, and Christopher Ody. "How Does Competition Impact Quality of Care? A Case Study of the U.S. Dialysis Industry." Working Paper, October 2016. (Currently being revised (June 2018)) View Details
- Cases and Teaching Materials
-
- Dafny, Leemore. "Cigna-Express Scripts: Can a Vertical Merger Rescue an Industry Under Attack?" Harvard Business School Case 323-038, October 2022. View Details
- Dafny, Leemore. "Beth Israel Deaconess: Consolidating to Strengthen, or to Stave Off, Competition?" Harvard Business School Case 319-026, October 2018. (Revised August 2019.) View Details
- Dafny, Leemore, and Victoria Marone. "Oscar Health Insurance: What Lies Ahead for a Unicorn Insurance Entrant?" Harvard Business School Case 319-025, August 2018. (Revised August 2019.) View Details
- Other Publications and Materials
-
- Dafny, Leemore S. "Testimony to the U.S. Senate on Healthcare, 2018." Government Testimony, Washington, DC, United States, 2018. View Details
- Dafny, Leemore S. "Testimony to the U.S. House of Representatives on Healthcare, 2015." Government Testimony, U.S. House of Representatives, Washington, DC, 2015. View Details
- Dafny, Leemore S. "How Health Care Consolidation Is Contributing to Higher Prices and Spending, and Reforms That Could Bolster Antitrust Enforcement and Preserve and Promote Competition in Health Care Markets." Government Testimony, Washington, DC, United States, April 2021. View Details
- Dafny, Leemore S. "Addressing Consolidation in Health Care Markets." JAMA, the Journal of the American Medical Association 325, no. 10 (March 9, 2021): 927–928. View Details
- Dafny, Leemore S., and J. Michael McWilliams. "Primary Care Is Hurting: Why Aren't Private Insurers Pitching In?" Health Affairs Blog (May 21, 2020). View Details
- Dafny, Leemore S. "Health Care Industry Consolidation: What Is Happening, Why It Matters, and What Public Agencies Might Want to Do About It." Government Testimony, U.S. House of Representatives, Committee on Energy and Commerce, Subcommittee on Oversight and Investigations, Washington, DC, February 2018. View Details
- Teaching
-
U.S. Healthcare Strategy The U.S. healthcare sector accounts for 17 percent of GDP, and encompasses a diverse set of industries with public, nonprofit, and for-profit buyers and sellers. There are significant concerns about high and rising spending, and substantial opportunities to increase the efficiency of the sector while improving quality. This course will delve into strategic challenges facing firms in multiple healthcare sectors, using frameworks and insights from business strategy, microeconomics, and health policy. The case discussions will emphasize how strategic principles can be applied in healthcare settings to identify sources of competitive advantage (or disadvantage). We will also evaluate the impact and optimal design of governmental policies and regulations - from the perspectives of business as well as society. A secondary goal of the course is to familiarize students with the industries and institutions shaping the healthcare industry in the U.S. Our focus will be on payers and providers, but we will also devote 20% of our time to drugs and devices (which comprise about that share of healthcare spending). Throughout, we will discuss U.S. healthcare reform (past and future) – particularly payment reform - and its implications for the various industry sectors. This course will not be taught in 2020-2021 while Professor Dafny is on leave.
- Awards & Honors
-
Selected as the 14th Annual Seidman Lecturer by the Department of Health Care Policy at Harvard Medical School.Winner of the 2012 Stanley Reiter Best Paper Award from the Kellogg School of Management.Received a Sidney J. Levy Teaching Award from the Kellogg School of Management in 2011.Received a Faculty Impact Teaching Award from the Kellogg School of Management in 2010 and 2011.Received the Chairs' Core Course Teaching Award, Best Instructor for Management & Strategy, from the Kellogg School of Management, 2005–2006.Recipient of a National Science Foundation Graduate Research Fellowship, 1997–2001.
- Additional Information
-
AffiliationsEditorial AffiliationsPublic Comments related to Healthcare Competition Issues, 2014-present
- Response to FTC-DOJ Request for Merger Guidelines Feedback
- Testimony to US House in re Provider Consolidation and Antitrust Enforcement 2021
- Testimony to House in re Health Care Industry Consolidation 2018
- Amicus Brief in re Anthem-Cigna Proposed Merger 2017
- Comment on Wellmont-MSHA COPA Application by Professors and Academic Economists 2016
- Amicus Brief in re Hershey-Pinnacle Proposed Merger 2016
- Op-Ed in re Huntington-Cabell West VA merger 2016
- Testimony to Senate in re Insurance Industry Mergers 2015
- Comment on Partners Settlement by Academic Economists 2014
- Areas of Interest
- In The News