Preferred Pharmacy Networks and Drug Costs

Amanda Starc and Ashley Swanson

American Economic Journal: Economic Policy, 2021, vol. 13, issue 3, 406-46

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.

JEL-codes: G22 H51 I13 I18 L65 L81 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1257/pol.20180489

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