Preferred Pharmacy Networks and Drug Costs†

Amanda Starc*, Ashley Swanson

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Scopus citations


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 languageEnglish (US)
Pages (from-to)406-446
Number of pages41
JournalAmerican Economic Journal: Economic Policy
Issue number3
StatePublished - Aug 2021

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)


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