Should We Prevent Off-Label Drug Prescriptions? Empirical Evidence from France

After a drug obtains marketing authorisation, the usage depends on the regulation of off-label prescriptions for unapproved indications. Off-label prescriptions represent more than 20% of drug spending and treatment choices in many developed economies. We investigate the impact of regulation of off-label prescriptions on physicians' behavior, patients' health, treatment costs and pharmaceutical firms' pricing with a structural model of demand and supply. Exploiting rich panel data on physicians' activities and office visits in France over a nine-year period, we use a model of prescription choice and health outcomes with unobserved patient-level heterogeneity. We identify the demand for on-label and off-label drugs and the effect of prescription choice on health outcomes. On the supply side, we use a Nash-in-Nash bargaining model between the government and the pharmaceutical companies that allows the partial identification of the marginal costs of drugs. Counterfactual simulations show that when we remove off-label drugs from the choice set of physicians, substitution to on-label drugs at constant prices would lead to an increase of 15% in the expenditure on prescription drugs. If we allow bargaining adjustment on drug prices under a ban on off-label prescriptions, the ban would further increase the treatment cost, by 27%, without leading to an improvement in health outcomes.