Abstract
Selective contracting is an increasingly popular tool for reducing health care costs, but any savings must be weighed against consumer surplus losses from restricted access. Recently, many prescription drug plans (PDPs) utilize preferred pharmacy networks to reduce drug prices. Our results suggest that Medicare Part D plans with preferred pharmacy networks pay lower retail drug prices, while subsidized enrollees’ insensitivity to preferred pharmacy cost-sharing discounts reduces these savings. We then estimate pharmacy demand models to quantify the costs and benefits of preferred pharmacy networks, finding that the average enrollee benefits from preferred pharmacy contracting due to reduced out of-pocket (OOP) costs at preferred pharmacies.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 406-446 |
| Number of pages | 41 |
| Journal | American Economic Journal: Economic Policy |
| Volume | 13 |
| Issue number | 3 |
| DOIs | |
| State | Published - Aug 2021 |
Funding
* Starc: The Kellogg School of Management, Northwestern University and NBER (email: amanda. [email protected]); Swanson: Graduate School of Business, Columbia University and NBER (email: [email protected]). Kate Ho was coeditor for this article. We gratefully acknowledge funding from the Wharton Public Policy Initiative, the Boettner Center and Pension Research Council (PRC) of the Wharton School, the Wharton Dean’s Fund, the Wolpow Family, and the Leonard Davis Institute. Starc acknowledges additional financial support from the American Medical Association. We thank Abby Alpert, Rena Conti, David Dranove, Adam Fein, Sebastian Fleitas, Craig Garthwaite, Gautam Gowrisankaran, Matthew Grennan, Atul Gupta, Christopher Ody, Dan Polsky, Mark Shepard, Anna Sinaiko, and Bob Town, as well as numerous conference and seminar audiences, for helpful comments and discussion. Allison Briggs, Jordan Keener, Alexa Magyari, Amy Tingle, and Yihao Yuan provided excellent research assistance. This product uses publicly available data courtesy of the US National Library of Medicine (NLM), National Institutes of Health, Department of Health and Human Services; NLM is not responsible for the product and does not endorse or recommend this or any other product. All errors are our own.
ASJC Scopus subject areas
- General Economics, Econometrics and Finance