Preferred Pharmacy Networks and Drug Costs
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Amanda Starc
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Ashley Swanson
- American Economic Journal: Economic Policy (Forthcoming)
Abstract
Selective contracting is an increasingly popular tool for reducing healthcare costs, but any
savings must be weighed against consumer surplus losses from restricted access. Recently,
many prescription drug plans 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 costs at preferred pharmacies.
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