Quality choice with reputation effects: Evidence from hospices in California (Job Market Paper)
Abstract: Hospices - firms that give palliative care to dying patients - form a large and growing industry in the US with significant implications for patient welfare and cost savings. Using data from California, I study how a hospice's quality choice is influenced by reputation concerns, and explore counterfactual policies to improve hospice quality. There is no price competition because Medicare pays hospices a fixed per-day rate for each patient, so hospices compete on reputation. A hospice's reputation is a stock of its past quality choices. Thus a hospice can build up its reputation stock over time by consistently choosing high quality. First I estimate a structural model of hospice choice by consumers, and find that hospice reputation has a strong effect on demand. Then I build a dynamic oligopoly model of hospices choosing quality to compete on reputation against rivals. This is used to recover the hospice cost function and conduct the following policy counterfactuals. As reputation becomes more persistent - for instance, through the creation of an online hospice rating system - hospices choose higher quality. Hospices also choose higher quality as Medicare prices increase, but the response depends on how differentiated they are in characteristics from rivals. Finally, a hybrid per-day per-visit hospice reimbursement scheme achieves the same quality with nearly 30% lower spending than the current per-day Medicare scheme.
Entry and pricing with fighting brands: Evidence from the pharmaceutical industry (with Rena Conti)
Abstract: Branded drug manufacturers often respond to generic entry by releasing an Authorized Generic (AG), which is chemically identical to the brand drug but without the brand label attached. Subsequently, the branded drug charges a high price and AG charges low price to compete with generics. In recent years the FDA has focused on speeding up generic approval rates, while the FTC has raised concerns regarding the impact of AGs on generic entry and prices. Using quarterly drug sales and revenue data on US for 2004-2016, we use a stylized structural model of entry and pricing to study how faster generic approval rates and a ban on AG can impact market outcomes. We build and estimate a structural model of prescription drug demand, generic entry, AG release, and pricing. This is used to simulate the following policy counterfactuals. We find that a faster generic approval rate leads to weakly fewer generic entrants, strictly lower prices in the early periods of the market, and ambiguous effect on prices in later periods of the market. An authorized generic is less likely to be released, and entering generics are more likely to fully recoup their entry cost. Finally, we show that a ban on authorized generics leads to weakly more generic entrants but ambiguous effect on overall prices.
Works in progress
Production functions of primary-care clinics