Do Drug Price Adjustment Policies Work? The Impact of Physician Financial Incentive Plans on the Implementation of Drug Cost Containment Mechanisms

Abstract

In Taiwan, some hospitals reward physicians through financial incentive plans linked to the amount of revenue generated by the drugs they prescribe to patients. This study investigates whether the prescription behavior of physicians impacts the implementation of the government’s drug price adjustment policy, which reduces the amount of reimbursement for certain drugs. Our objective is to determine if the policy is effective. To this end, we consider the drugs prescribed to a specific category of patients, namely, hospital outpatients aged 65 and above with hypertension. Between December 1999 and July 2000, approximately 468,000 prescriptions were issued to such patients. First, we used regression analysis to examine the effect of financial incentives offered to physicians on drug utilization after the implementation of the drug price adjustment policy. Then, we employed a probit model to investigate changes in physicians’ prescription behavior for drugs with and without reduced prices.

The results show that hospitals with physician incentive programs have more drug treatment days and a higher number of drugs per prescription after implementation of a price adjustment policy. In addition, we found that drugs without reduced prices were prescribed more often than reduced-price drugs, which suggests that the financial incentives offered to physicians may have an impact on the implementation of drug cost containment mechanisms. Taiwan’s experience provides a good opportunity to examine, simultaneously, the effects of cost containment mechanisms and physicians’ incentives within a staff-model context.