Consumer choices between Over-The-Counter and prescription drugs: The case of Claritin

In recent years, a lively debate has taken place on the effects of switching drugs from prescription (Rx) to the Over-The-Counter (OTC) status. There is no doubt that the Rx-to-OTC switch affects the interests of various groups differently and there are different opinions about costs and benefits of the switch. The switch of Claritin to the OTC status triggered a new wave of studies about the impacts of the policy change. This research shed light on the impact of Claritin switch on consumer choices of Second Generation Antihistamines (SGAs), the SGA full and out-of-pocket elasticities, and the choice of SGA drugs by Medicaid beneficiaries. A mixed logit model, which permits flexible substitution patterns among drug choices by including both observed and unobserved consumer heterogeneity, was employed in this study to estimate the demand for the SGAs. The study uses data from Medical Expenditure Panel Survey (MEPS), which is a nationally representative survey of health care use and spending in the US civilian and noninstitutionalized population. The Rx-to-OTC switch of Claritin has five main impacts summarized as follows: (1) The switch created considerable savings to the insurance companies and the Medicaid program mainly because of the decrease in the total office-based doctor expenditures of allergy sufferers by 47% and their Rx expenditures by 37% after the switch. However, their emergency room expenditures increased by 30%. (2) Before the Claritin switch, the full and out-of-pocket prices were positively related to consumer choices. After the policy change, the full and out-of-pocket prices were negatively related to consumer choices. Moreover, after the switch the out-of-pocket price elasticities for all SGAs were less than 0.3 in absolute terms, indicating that the demand is inelastic and SGAs essential drugs; (3) Individual specific variables such as age, income, and health conditions were determining factors in the choice of second generation antihistamine drugs and changed drastically after the policy change; (4) Insurance coverage impacts medication choices differently before and after the policy change. For example, Medicaid beneficiaries were more likely to choose Claritin before the switch. However, they were more likely to choose less expensive generic loratadine after the switch.