A Dose of Managed Care: Controlling Drug Spending in Medicaid

David Dranove*, Christopher J Ody, Amanda Starc

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Scopus citations


We study the effect of privatizing Medicaid drug benefits on drug prices and utilization. Drug spending would decrease by 21.3 percent if private insurers administered all drug benefits. One-third of the decrease is driven by private insurers’ ability to negotiate prices with pharmacies. The remaining two-thirds is driven by the greater use of lower cost drugs, such as generics, and is only realized in states that give private insurers the flexibility to design drug benefits. Privatization does not reduce prescriptions per enrollee and spending cuts are smaller for drugs that lower medical spending.

Original languageEnglish (US)
Pages (from-to)170-197
Number of pages28
JournalAmerican Economic Journal: Applied Economics
Issue number1
StatePublished - Jan 2021

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)


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