Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market

Charles Gray, Abby E. Alpert and Neeraj Sood

No 31536, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The pharmaceutical market has experienced a massive wave of vertical integration between pharmacy benefit managers (PBMs) and health insurers in recent years. Using a unique dataset on insurer-PBM contracts, we document increasing vertical integration in Medicare Part D–vertically integrated insurers' market share increased from about 30% to 80% between 2010 and 2018. Next, we evaluate a large insurer-PBM merger in 2015 to assess the trade-offs of vertical integration–harms to competition due to input and customer foreclosure on the one hand and improved efficiency on the other. We find premium increases after the merger for insurers who bought PBM services from rivals, which is consistent with vertically integrated PBMs raising costs through input foreclosure.

JEL-codes: I1 I11 I13 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-com, nep-hea, nep-ind and nep-reg
Note: EH IO
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