Preferred Pharmacy Networks and Drug Costs

Amanda Starc and Ashley Swanson

No 24862, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Selective contracting is an increasingly popular tool for reducing health care costs, but these savings must be weighed against consumer surplus losses from restricted access. In both public and private prescription drug insurance plans, issuers utilize preferred pharmacy networks to reduce drug prices. We show that, in the Medicare Part D program, drug plans with more restrictive preferred pharmacy networks, and plans with fewer enrollees who are insensitive to preferred pharmacy discounts on copays, pay lower retail drug prices. We then use estimates of plan and pharmacy demand to estimate the first-order costs and benefits of selective contracting in the presence of enrollees with heterogeneous sensitivity to preferred supplier incentives.

JEL-codes: I13 L1 (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-cta, nep-hea, nep-ias and nep-ind
Note: EH IO
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Citations: View citations in EconPapers (1)

Published as Amanda Starc & Ashley Swanson, 2021. "Preferred Pharmacy Networks and Drug Costs," American Economic Journal: Economic Policy, vol 13(3), pages 406-446.

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