Price elasticity and pharmaceutical selection: the influence of managed care

State Medicaid programs are turning increasingly to managed care to control expenditures, although the types of managed care programs in use have changed dramatically. Little is known about the influence of the shifting Medicaid managed care arena on treatment decisions. This paper investigates factors affecting the selection of treatments for depression by providers participating in either of two Medicaid managed care programs. Of particular interest is the influence of medication price on the choice of treatment, since one vehicle through which managed care organizations can reduce total expenditures is by increasing the price sensitivity of participating providers. We take a new approach by phrasing the problem as a discrete choice, using a nested multinomial logit model for the analyses. Contrary to earlier literature, we find some evidence that physicians in both programs do take price into consideration when selecting among treatment options. HMO providers in particular demonstrate increased price sensitivity in the two most commonly prescribed categories of antidepressants.