Health Economics and Financing 5th Edition By Thomas – Test Bank

File: c11; Chapter 11: Pharmaceuticals

True/False

1) In the presence of insurance coverage, over the counter purchases of drugs like acetaminophen, ibuprofen and naproxen sodium will have a higher elasticity of demand than physician prescribed drugs.

Answer: True
Response: Insurance coverage decreases elasticity of demand.
Reference: 11.3 History And Regulation Of Pharmaceuticals
Level: Easy

2) Jay’s physician prescribes a 15-day supply of a pain relieving medication which costs Jay $15 in co-pay because he has an insurance policy which covers prescription drugs. After 15 days, Jay is still in pain and believes that the medicine alleviates his pain about the same as over the counter ibuprofen. Ibuprofen costs $15 for a 15-day supply, and Jay’s price elasticity of demand is about the same for both products. Jay will eventually decide to purchase the ibuprofen over the counter because renewing his prescription involves an additional opportunity cost of the doctor visit.

Answer: True
Reference: 11.3 History And Regulation Of Pharmaceuticals
Level: Medium

3) Costs structure in the pharmaceutical industry is largely characterized by fixed expenses which are proportional to output levels.

Answer: False
Response: It is true that high fixed costs of R&D are a characteristic feature of the industry. However, it’s variable, not fixed, costs that are proportional to output levels.
Reference: 11.2 Uses of Funds/ Pharmaceutical Firms
Level: Medium

4) On average, government-funded expenditures on prescription drugs are about $200 per person per year.

Answer: False
Response: At $918 per person in 2012, the Medicare and Medicaid percentage share is at least 31%, or $285. See Table 11.1.
Reference: 11.2 Uses of Funds
Level: Medium

5) While generics account for more than three quarters of all prescription drugs sales by volume, they account for only 10% of all prescription sales revenues.

Answer: False
Response: They account for about 20% of all prescription sales revenues.
Reference: 11.1 Pharmaceutical Revenues: Sources Of Financing
Level: Easy

6) It was not until after World War II, that it became clear that control over drug safety mechanisms should rest with governmental agencies rather than with an industry watchdog group.

Answer: False
Response: 1938 Food, Drugs, and Cosmetics Act occurred before WWII.
Reference: 11.3 History and Regulation of Pharmaceuticals
Level: Easy

7) The average percentage of revenues spent on R&D by pharmaceutical companies in the U.S. has been stable for the past three decades at about 17%.

Answer: False.
Response: R&D spending has been steadily increasing. For instance, in 2001 R&D spending was 17.7% of sales, compared to 11.9% spent in 1980.
Reference: 11.4 Research and Development
Level: Easy

8) One of the most widely used estimates of the average cost of developing a new drug has been at about $80 million (in 2000 dollars).

Answer: False
Response: The average cost of developing a new drug is about $800 million.
Reference: 11.4 Research and Development
Level: Medium

9) One of the common tasks for pharmacoeconomists employed by large pharmaceutical companies is performing a cost effectiveness study of a new drug.

Answer: False
Cost-effectiveness studies aim to minimize the cost of one unit of a particular non-monetary health outcome (e.g. treatment outcome, such as QALY). Thus they are of limited interest to pharmaceutical companies who aim to maximize profits first.
Reference: 11.5 Pharmacoeconomics and Technology Assessment
Level: Difficult

10) Economies of scale are a common feature of R&D in the pharmaceutical industry.

Answer: False
Response: There is no evidence of economies of scale in the pharmaceutical research and development.
Reference: 11.4 Research and Development
Level: Easy