Medicare Part D and Preferred Provider Pharmacy Networks

4 Pages Posted: 7 Oct 2016

Date Written: April 15, 2005

Abstract

The purpose of this note is to present the case that a provision in Medicare Part D has contributed significantly to the interest in sponsorship. This provision allows for the creation of preferred provider retail pharmacy networks with highly differentiated co-payments. PBMs of large drugstore chains are in the best position to take advantage of this provision. Battered by discriminatory practices used by independent PBMs to swing business away from retail pharmacies to their captive mail order operations, the drugstore chains are poised to unleash their PBMs in a counterattack.

Although the Medicare discount card program was not designed specifically to be a steppingstone to the full benefit plan, it has provided a showcase for the cost-reducing potential of preferred provider retail pharmacy networks. Evidence of this potential comes from data compiled by the AARP Public Policy Institute.

Keywords: Pharmacy Benefit Managers, PBMs, Medicare Part D, Drug Rebates, Mail Order Pharmacies, Bilateral Oligopoly, Countervailing Power, Tacit Collusion, Preferred Providers, PBMs

JEL Classification: D43, I13, I11, I1, L13, K21, L41

Suggested Citation

Abrams, Lawrence, Medicare Part D and Preferred Provider Pharmacy Networks (April 15, 2005). Available at SSRN: https://ssrn.com/abstract=2848665 or http://dx.doi.org/10.2139/ssrn.2848665

Lawrence Abrams (Contact Author)

Independent ( email )

PO Box 1285
Watsonville, CA 95077
United States
831-254-7325 (Phone)

HOME PAGE: http://nu-retail.com

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