TY - JOUR
T1 - Preferred Pharmacy Networks and Drug Costs†
AU - Starc, Amanda
AU - Swanson, Ashley
N1 - Funding Information:
* Starc: The Kellogg School of Management, Northwestern University and NBER (email: amanda. starc@kellogg.northwestern.edu); Swanson: Graduate School of Business, Columbia University and NBER (email: ats2180@gsb.columbia.edu). 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.
Publisher Copyright:
© 2021, American Economic Journal: Applied Economics. All Rights Reserved.
PY - 2021/8
Y1 - 2021/8
N2 - 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.
AB - 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.
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U2 - 10.1257/pol.20180489
DO - 10.1257/pol.20180489
M3 - Article
AN - SCOPUS:85125094689
SN - 1945-7731
VL - 13
SP - 406
EP - 446
JO - American Economic Journal: Economic Policy
JF - American Economic Journal: Economic Policy
IS - 3
ER -