The Drug Price Competition and Patent Term Restoration Act of 1984 and ethical brand name drug pricing behavior

The pharmaceutical industry has been identified as a cost driver of health care expenditures. The products of this industry, however, account for less than ten percent of total national health expenditures. As a result of the attention, researchers and legislators have taken an interest in understanding and structurally altering the industry.;Researchers are examining the industry in terms of its market structure, producer and consumer behavior. The majority of these studies do not rely on or develop theoretical frameworks; rather they seek to interpret available data. Legislators have adopted measures to affect the industry and continue to introduce action to structurally alter the industry in order to stimulate competitive pricing behavior.;In 1984 a compromise bill, the Drug Price Competition and Patent Term Restoration Act, was passed. It was expected to stimulate competitive forces through encouraging generic entry, while extending patent protection for qualified products.;The purpose of this study was twofold: to attempt to bridge the gap between a theoretical foundation and empirical analysis and identify the effect of the Act on brand drug pricing behavior. The theoretical model captures the fundamental structure of the industry and provides a framework for future work in this area. The comparative dynamics reveal that product life-cycle, brand loyalty, and acceptance of generic versions are important to the pricing path.;The empirical analysis identifies the effect of various factors on brand drug pricing behavior. Data for twenty-seven brand drug products whose patents expired before or after October 1984 were provided by IMS America, Ltd. The analysis relies on consumer prices, since an objective of the Act was to benefit consumers. I find that generic entry stimulates brand drug competitive behavior. Market share and brand product maturity were also found to significantly affect brand prices.;The analysis does provide support for the intent of the DPC-PTR Act and also reveals that in order to understand the entire effect of the Act, an analysis must consider the entire life-cycle of the products. Data must include their patent protection and patent expiration period.