Does giving patients targeted information increase generic substitution?

Health policy so far has leaned heavily on financial incentives to encourage individuals to switch to generics drugs. However, this approach often overlooks a key principle: markets only function efficiently when both buyers and sellers are sufficiently well-informed. In the healthcare sector, a host of formal and informal barriers make it tougher for patients to access the information they need. For instance, direct-to-consumer advertising of prescription drugs is largely prohibited, and the sheer number of available medications can leave patients feeling overwhelmed. On top of that, doctors and pharmacists may have certain financial motivations to keep their patients unaware of less expensive generic alternatives. Patients therefore remain at a significant informational disadvantage, which ultimately undermines their ability to make optimal decisions. Nonetheless, the role of patient information in promoting generic substitution has so far been largely neglected. If patients do not know that more affordable generics exist prior to their purchase, they cannot respond to the price differences.

To close this information gap, in 2010 CSS launched a direct-to-patient campaign. Whenever an insured individual purchased one of about 30 selected brand-name medications, they automatically received a personalized letter in the mail. This letter highlighted all the available generic equivalents and spelled out exactly how much they could save, expressed as a percentage. Aiming to maximize overall cost savings, CSS sent these letters to all eligible patients. As a result, no randomized experiment was conducted to rigorously evaluate the campaign’s effectiveness.

One way to measure the effectiveness of the informational intervention would be to compare the share of generic purchases before and after the letter was sent out. But a simple before-and-after comparison risks inflating the effect of the of campaign. After all, some of the patients would have switched from the branded drug to a generic alternative on their own, even without receiving the mailing. For one thing, the mailing system did not check whether patients had already purchased a generic version of the medication since their initial brand-name buy. For another, we know from research that the more often consumers buy a product, the savvier they become and the more likely they are to seek alternatives themselves. These "self-driven" switches should not be attributed to the mailing campaign itself.

To nevertheless determine the causal effect of the mailing, we needed to find a suitable control group after the campaign has already taken place. Fortunately, the generic campaign was only a small part of overall the customer communications at CSS. To prevent overwhelming insured persons with too many letters at once, each piece of communication receives an internal priority ranking. When multiple pieces of correspondence are due at the same time, the highest-priority one goes out first, while others are held back for several weeks. Because the generics mailing was time-sensitive, their dispatch was often temporarily delayed. This created a quasi-random distribution of when patients received the information in the letter. We could then compare the likelihood that a patient would buy a generic alternative at their "nth" purchase, depending on whether they had already received the mailing or were still waiting for it. By making this comparison, we isolated the causal effect of the mailing from other factors and arrived at a true measure of its effectiveness.

In our analysis, we calculated the average effect of the generic letter from 60,000 recipients with a total of 540,000 drug purchases.We focus only on the three purchases before and two purchases after the the mailing was received in a so-called “event study”. The results are striking: at the very first “informed” purchase, the share of generics drugs jumps by around 26 percentage points. Assuming that the letter still prompts other patients to switch at the second purchase after the mailing, the total increase amounts to about of 29 percentage points. Compared to an average generic share of about 10% before the mailing, this corresponds to nearly a fourfold boost.

Among the targeted individuals, some had already reached their cost-sharing maximum for the year by the time they received the letter—meaning additional medication purchases wouldn’t cost them anything. Others still faced at least partial cost-sharing. Comparing these two groups, we find that patients who still had to pay out-of-pocket responded slightly more strongly to the mailing. Financial incentives therefore do have an effect, but the difference is only around 2.5 percentage points. Even if switching from a brand-name drug to a generic made no financial difference to the patient themselves, the letter still tripled the likelihood of choosing a generic. In other words, targeted and customized information alone is an extremely potent tool, as it impacts also patients who have nothing to gain financially. Empowering patients through information can thus deliver benefits that far exceed the scope of monetary incentives.

Market mechanisms such as cost-sharing only work well if everyone has sufficient information. This highlights the long-overlooked role of patient education, especially in the Swiss healthcare system—especially in a healthcare system like Switzerland’s, where patients are expected to make choices similar to consumers on a regular product market. Yet, regulatory hurdles often block patients from the information they need, hurdles that simply don’t exist in other markets. For example, the CSS generics mailing was banned in 2022 following a directive by the Federal Office of Public Health (FOPH). Hence, healthcare providers remain the only official information channel, which is neither cost-effective nor time-efficient. It also puts patients in the position of having just one information source—one that potentially stands to profit from their decisions. Policymakers could step in by leveraging the benefits of digitalization to ensure patients have timely, accessible information. After all, knowledgeable, empowered patients lead to a better functioning healthcare system for everyone.