The Weight of Unseen Diabetes Prescription Costs and the Case for Real-Time Pricing

Overview: In the paper titled, “Patient Costs and Physicians' Information,” NYU Stern Professor Michael Dickstein along with co-authors Jihye Jeon (Stern PhD ’17, Boston University) and Eduardo Morales (Princeton University) study what physicians know about their patients' out-of-pocket drug costs at the moment of prescribing, using diabetes care as a case study.

Why Study This Now: When doctors write prescriptions, their decision is a balance between how well each drug works against what it will cost the patient out of pocket. These costs can differ widely depending on the insurance plan: in the authors' data, the same diabetes drug can cost one patient $20–$30 more per month than another. A doctor who treats patients across many plans cannot realistically keep track of every drug's cost under every plan. 

Drug prices have also been increasingly prominent in U.S. policy conversations, led mainly by the GLP-1 boom and Medicare price negotiations. Pricing agreements are changing nearly every quarter, making it difficult for physicians to rely on existing methods of cost estimation (e.g., using pricing information from the previous year). One of the three drugs in the study, Januvia, was among the first ten drugs subject to Medicare price negotiation; its negotiated price of $113 for a 30-day supply took effect January 1, 2026, roughly 79% below its 2023 list price of $527.

What the Authors Found: Analyzing nearly 11,000 prescriptions written by over 1,500 providers for privately insured type 2 diabetes patients, the researchers focused on a class of three clinically similar diabetes drugs and found:

• Physicians choose the patient’s lowest-cost option only about 38% of the time, roughly what choosing at random among the three drugs would produce. Patients who don't receive the cheapest option pay an average of about $17 more per month
• Physicians do not appear to know patients’ actual out-of-pocket prices, but rely on broad averages instead, such as the prior year's average price for each drug by type of insurance plan
• In the authors' model, showing physicians each patient's actual prices at the point of prescribing raises the share of patients receiving their cheapest drug by 6.8 to 32.5 percentage points for primary care physicians, versus only 1.4 to 3.8 percentage points for endocrinologists. Patients of primary care physicians would save $3.10 to $8.70 per month, a 7-20% reduction in their out-of-pocket costs

What Does This Change: For policymakers and health insurers, the results identify a weak link in one of the most common cost-control strategies in American health insurance. Insurers rely on tiered formularies to steer patients toward cheaper drugs, but this can only be successful if physicians know the actual prices at the point of prescribing. For patients, the stakes go beyond the pharmacy receipt. High out-of-pocket costs lead patients to abandon or ration prescriptions. Prescribing the drug a patient can afford is a first step toward better adherence and, ultimately, better control of a chronic disease like diabetes.

Key insight: “A doctor who treats patients across dozens of insurance plans cannot reasonably be expected to know what each one will pay at the pharmacy. We find that physicians do care about those costs, more than earlier estimates suggested, but they're working from rough, year-old averages,” say the authors. “Putting the patient's actual price in front of the doctor at the moment of prescribing, particularly in primary care, could meaningfully lower what patients pay.”

This paper has been accepted at the American Economic Review.