Pricing Intermediaries in Prescription Drug Markets: To Leverage or Replace?
76 Pages Posted: 28 Jan 2019 Last revised: 20 Nov 2020
Date Written: March 5, 2019
This article assesses the price-negotiation role played by Pharmacy Benefit Managers (PBMs), which have been at the heart of the recent drug pricing debate. I start by collecting novel data on the net-of-rebate prices of anti-cholesterol drugs. These prices are then used to estimate a dynamic model of drug pricing that involves PBMs and drug companies. Counterfactuals show that PBMs reduce overall spending by 15 percent without greatly reducing patient access, likely increasing short-run welfare but reducing innovation incentives. The model is also used to evaluate recent policy proposals related to PBMs.
Keywords: Drug Pricing, Pharmacy Benefit Managers, Formulary Design, Medicare Part B, Medicare Part D, Dynamic Games, Dynamic Pricing, Consumer Inertia
JEL Classification: L11, L65, I11, I13, H51
Suggested Citation: Suggested Citation