Restrict the Middleman? Quantitative Models of PBM Regulations and Their Consequences

56 Pages Posted: 7 Mar 2023

See all articles by Casey B. Mulligan

Casey B. Mulligan

University of Chicago; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 6, 2023

Abstract

This paper provides the first quantitative economic models of pharmacy benefit management regulation. The price-theoretic models allow for various market frictions and imperfections including market power, coordination costs, tax distortions, and incomplete innovation incentives. A rigorous economic interpretation is provided for what are sometimes called “rebate walls” or “rebate traps.” Applicable types of regulation include rebate rules, such as the HHS rebate rule and the Insulin Act; disclosure requirements such as the PBM Transparency Act of 2023; and pharmacy contract restrictions such as the CMS Medicare rule to take effect in 2024. Utilization of brands and generics, plan spending, cost sharing, spillovers to nonpharmacy medical spending, government budgets, and the pace of drug innovation are among the outcomes tracked by the open-source model.

JEL Classification: D43,D71,I11,I13,L14,L51

Suggested Citation

Mulligan, Casey B., Restrict the Middleman? Quantitative Models of PBM Regulations and Their Consequences (March 6, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-31, Available at SSRN: https://ssrn.com/abstract=4380757 or http://dx.doi.org/10.2139/ssrn.4380757

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