A Dose of Managed Care: Controlling Drug Spending in Medicaid

76 Pages Posted: 23 Oct 2017

Date Written: October 2017

Abstract

Effectively designed market mechanisms may reduce growth in health care spending. In this paper, we study the impact of privatizing the delivery of Medicaid drug benefits on drug spending. Exploiting granular data that allow us to examine drug utilization, we find that drug spending would fall by 22.4 percent if the drug benefit was fully administered by Medicaid Managed Care Organizations (MCOs), largely through lower point-of-sale prices and greater generic usage. The effects are driven by MCOs’ ability to design drug benefits and steer consumers toward lower cost drugs and pharmacies. MCOs do not appear to skimp on performance, either by reducing overall drug consumption as measured by prescriptions per enrollee or reducing utilization of drugs that offset other medical spending.

Suggested Citation

Dranove, David and Ody, Christopher J. and Starc, Amanda, A Dose of Managed Care: Controlling Drug Spending in Medicaid (October 2017). NBER Working Paper No. w23956. Available at SSRN: https://ssrn.com/abstract=3057187

David Dranove (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8682 (Phone)
847-467-1777 (Fax)

Christopher J. Ody

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Amanda Starc

Kellogg School of Management, Northweste ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
3303382067 (Phone)

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