Bad Medical News and the Aversion of Generic Drugs

Efforts to reduce inefficient healthcare spending are prevalent across the developed world. Among available policy options, the substitution of brand name for generic drugs is of particular interest because it can deliver large savings without objective quality sacrifices. These policies are nevertheless met with resistance from patients, who perceive generic drugs as of relatively lower quality. This article sheds new light on the behavioral underpinnings of such generic averse behavior. We argue that generic aversion can be fueled by an inescapable element of patients' interaction with the healthcare system, i.e., receiving information that unveils a health deficiency. We argue that such bad medical news reduce the patient's risk tolerance, causing a turn from generic drugs due to their higher perceived risk. Supporting evidence is presented from the context of LDL ("bad") cholesterol testing, where patients who receive a 130 mg/dL result are assigned to a bad news treatment in a plausibly random way compared to those who receive a 129 mg/dL result. Compared to these control patients, we find that treated patients experience a 1.3% reduction in their propensity to choose a drug's generic option after receiving the LDL result, conversely, an 8% increase in brand name choice propensity