Regional variation in prescription drug spending: Evidence from regional migrants in Sweden

There is substantial variation in drug spending across regions in Sweden, which can be justified if caused by differences in health need, but an indication of inefficiencies if primarily caused by differences in place-specific supply-side factors. This paper aims to estimate the relative effect of individual demand-side factors and place-specific supply-side factors as drivers of geographical variation in drug spending in Sweden. We use individual-level register data on purchases of prescription drugs matched with demographic and socioeconomic data of a random sample of about 900,000 individuals over 2007-2016. The primary empirical approach is a two-way fixed effect model and an event study where we identify demand- and supply-side effects based on how regional and local migrants change drug spending when moving across regional and municipal borders. As an alternative approach in robustness checks, we also use a decomposition analysis. The results show that the place-specific supply-side effect accounts for only about 5%-10% of variation in drug spending and remaining variation is due to individual demand-side effects. These results imply that health policies to reduce regional variation in drug spending would have limited impact if targeted at place-specific characteristics.

Automated summary

There is significant regional variation in drug spending in Sweden, which may be justified by differences in health needs or indicative of inefficiencies caused by supply-side factors. This study aims to estimate the relative impact of individual demand-side factors and place-specific supply-side factors on geographical variation in drug spending. Using register data on prescription drug purchases and demographic information from a random sample of 900,000 individuals over a 10-year period, the analysis reveals that place-specific supply-side factors account for only 5%-10% of the variation in drug spending, while the remaining variation is driven by individual demand-side factors. These findings suggest that targeting place-specific characteristics may have limited impact on reducing regional variation in drug spending.