This study examines the variables that may influence physicians’ choices of medication for their patients and the effect of the entry of me-too drugs on the market of breakthrough and generic drugs. Using the 2006 National Ambulatory Medical Care Survey (NAMCS), drugs belonging to the drug classes statin, cardioselective beta blockers, proton pump inhibitors and selective serotonin reuptake inhibitors were classified as generic, breakthrough and me-too drugs and analyzed separately. This study uses the discrete choice model of demand in analyzing the relationship between physician prescribing behavior and patient, physician and drug characteristics. This study found age, sex, race, ethnicity and number of current medication influence physicians’ prescribing behavior. Some physicians tend to prescribe one type of drug over the other. The study also found an indication of moral hazard. Price, direct-to–consumer advertising and certain characteristics of drugs that may indicate quality affect the likelihood of a drug to be prescribed.

The findings on the effect of direct-to-consumer advertising expenditure of me-too drugs on the market share of generic drugs and breakthrough drugs give empirical support to the proposed policy of approving new drugs on the basis of their efficacy against existing drugs in the market. With direct-to-consumer advertising, the findings of this study suggest that me-too drugs may reduce the market share of breakthrough drugs and generic drugs. It implies an increase on prescription drug spending but with little associated quality gain. The study validates previous findings that me-too drugs compete with breakthrough drugs and reduce incentives to invest in research.