Source Newsroom: Montana State University
Newswise — If you want consistent prescription drug prices, maybe you should invite more senior citizens to move to town.
When pharmacies have many senior citizens as customers, they appear to price prescription drugs more competitively, says Adrienne Ohler, who received a master's degree in economics from Montana State University this spring.
Ohler studied prescription drug pricing in 13 Montana communities for her thesis. She found reduced price variation in Montana communities with a higher percentage of senior citizens. In those communities, different pharmacies were much more likely to charge similar prices for prescription drugs, and higher prices were less likely to occur.
Ohler says that economic analysis suggests that average prices in these communities may therefore be lower.
Ohler worked with her principal adviser Vince Smith to investigate the factors that influence prescription drug prices in Montana. In discussing the findings that higher percentages of seniors narrow the range of prices charged, Ohler speculates that seniors have more time to do price-comparison shopping, more experience with multiple prescriptions, and are more financially motivated to find the best deals. So when pharmacies have many senior citizens as customers, they appear to price prescription drugs more competitively.
For similar reasons, in communities with a larger percentage of low income households, pharmacies tend to charge more competitive prices.
Ohler spent two months driving through Montana during the summer of 2004 to survey pharmacies in 13 communities, including Belgrade, Billings, Bozeman, Butte, Glasgow, Great Falls, Havre, Helena, Kalispell, Livingston, Missoula, Plentywood and Shelby.
While going door-to-door asking pharmacists to give her prices on 75 common prescription drugs was not always easy -- there were perks to the job.
"I got to see Glacier. That was really nice," Ohler, who is from the relatively flat-lands of Mt. Pulaski, Ill., says.
Ohler says she knew that she was asking for a considerable amount of the pharmacists' time, and in some cases corporate policies prevented them from providing the information. In all, Ohler had five towns from which she got five or six pharmacies to respond.
Other variables that tended to lower prices were whether a hospital was located within a mile of the pharmacy, whether the pharmacy was a part of a department store, and whether it was open Sundays. However, these variables were only significant in combinations or all together, Ohler found.
Ohler wrote that although Canadian drugs cannot be legally imported, Canadian prices are sometimes lower there for the same drug. She wanted to examine whether distance to Canada influenced Montana drug prices. Five of the surveyed communities were within 100 miles of the Canadian border, three were with about 40 miles of the border.
Ohler's data did not show any relationship between distance to Canada and prescription drug prices in Montana.
"Adrienne's original data allowed her to look at price variation across spatially separated markets and the characteristics of the buyers in those markets," Smith says. "Adding this special variability of the markets is a new and important contribution to the research literature on the subject."
Ohler's work did not compare the prices between the Montana communities surveyed, and the pharmacies surveyed are anonymous in her thesis.
Ohler receives the 2005 Montana State University Foundation Masters Graduate Achievement Award for her research on May 7, 2005.