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The impact of physician-level drug budgets on prescribing behavior


To contain pharmaceutical spending, drug budgets have been introduced across health systems. Apart from analyzing whether drug budgets fulfill their overall goal of reducing spending, changes in the cost and quality of prescribing and the enforcement mechanisms put in place need evaluation to assess the effectiveness of drug budgets at the physician level. In this study, we aim to analyze the cost and quality of prescribing conditional on the level of utilization of the drug budget and in view of varying levels of enforcement in cases of overspending. We observed drug budget utilization in a panel of 440 physicians in three federal states of Germany from 2005 to 2011. At the physician level, we retrospectively calculated drug budgets, the level of drug budget utilization, and differentiated by varying levels of enforcement where physicians overspent their budgets (i.e., more than 115/125% of the drug budget). Using lagged dependent-variable regression models, we analyzed whether the level of drug budget utilization in the previous year affected current prescribing in terms of various indicators to describe the cost and quality of prescribing. We controlled for patient and physician characteristics. The mean drug budget utilization is 92.3%. The level of drug budget utilization influences selected dimensions of cost and quality of prescribing (i.e., generic share (estimate 0.000215; p = 0.0246), concentration of generic brands (estimate 0.000585; p = 0.0056) and therapeutic substances (estimate −0.000060; p < 0.0001) and the share of potentially inappropriate medicines in the elderly (estimate 0.001; p < 0.0001)), whereas the level of enforcement does not. Physicians seem to gradually adjust their prescription patterns, especially in terms of generic substitution.

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Funding: This study was supported by a research grant from the Federal Ministry of Education and Research in Germany (grant number BMBF 01EH1101A).

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Correspondence to Katharina Elisabeth Fischer.

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Appendix note 1: Definition of drug budget

$${\text{Drug budget}}_{i,t} = \mathop \sum \nolimits [{\text{Number of patients}}_{i,t,j} \cdot {\text{Reference value}}_{r,j,t} - {\text{Patient structure}}_{i,t} ] .$$
Drug budget i,t Drug budget of physician i in year t
Number of patients i,t,j Number of patients in patient subgroup j with at least one visit to physician i per quarter in year t
Reference value r,t,j Reimbursement stated by regional physician association for drug budget calculation in region r for patient subgroup j in year t
Patient structure i,t Corrections for special patient structure (depending on diagnoses and/or treatment) for physician i in year t

Appendix note 2: Model specifications

Variable Distribution Link Variance-covariance matrix
Cost of prescribing
 Generic share Normal log Variance components
 Prescriptions/visit Gamma log Variance components
 Branded prescriptions/visit Inverse normal log Variance components
 Concentration among generic brands (brand loyalty) Gamma log Variance components
Quality of prescribing
 Concentration among therapeutic substances Inverse normal log Variance components
 Concentration among brands (brand loyalty) Normal log Variance components
 Share of potentially inappropriate medication in the elderly Gamma log Variance components

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Fischer, K.E., Koch, T., Kostev, K. et al. The impact of physician-level drug budgets on prescribing behavior. Eur J Health Econ 19, 213–222 (2018).

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  • Market regulation
  • Cost of prescribing
  • Physicians
  • Pharmaceuticals

JEL Classification

  • I11 (Analysis of Health Care Markets)