A Dose of Managed Care: Controlling Drug Spending in Medicaid

David Dranove, Christopher Ody and Amanda Starc

American Economic Journal: Applied Economics, 2021, vol. 13, issue 1, 170-97

Abstract: 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.

JEL-codes: G22 H51 I11 I13 I18 I38 L65 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Working Paper: A Dose of Managed Care: Controlling Drug Spending in Medicaid (2017)
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DOI: 10.1257/app.20190165

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