Preferred Pharmacy Networks and Drug Costs
69 Pages Posted: 13 Sep 2018 Last revised: 7 Jan 2020
Date Written: October 7, 2019
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.
JEL Classification: I13, L1
Suggested Citation: Suggested Citation