The largest expansion of entitlement programs in the United States in decades – Medicare Part D – is set to commence on January 1st of 2006. On that day, retirees will be eligible for subsidized insurance covering outpatient drug prescriptions. The plan will be managed by private sector...

On December 16, 2006, Express Scripts, the third largest PBM, announced a competing bid for Caremark. This horizontal merger of two of the Big 3 PBMs would be competitive if the combined company acted as a “countervailing power” as envisioned by economist John Kenneth Galbraith.PBM...

The roll out of the new Medicare drug benefit program has renewed the debate about who is best at negotiating drug rebates with pharmaceutical manufacturers (“Pharma”). Those who favor the Federal government point to statistics showing that Medicaid gets significantly better rebates than...

We estimate a bargaining model of competition between hospitals and managed care organizations (MCOs) and use the estimates to evaluate the effects of hospital mergers. We find that MCO bargaining restrains hospital prices significantly. The model demonstrates the potential impact of coinsurance...

We study physician agency and optimal payment policy in the context of an expensive medication used in dialysis care. Using Medicare claims data we estimate a structural model of treatment decisions, in which physicians differ in their altruism and marginal costs, and this heterogeneity is...

We study physician agency and optimal payment policy in the context of an expensive medication used in dialysis care. Using Medicare claims data we estimate a structural model of treatment decisions, in which physicians differ in their altruism and marginal costs, and this heterogeneity is...

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...

In theory, equilibrium profits for drug patent holders would not involve significant restraints on production and patient utilization if the market had a mechanism for two-part pricing (Oi 1971) or quantity commitments (Murphy, Snyder, and Topel 2014). In fact, patent expiration has little...

In theory, equilibrium profits for drug patent holders would not involve significant restraints on production and patient utilization if the market had a mechanism for two-part pricing (Oi 1971) or quantity commitments (Murphy, Snyder, and Topel 2014). In fact, patent expiration has little...

Insurers subcontract with pharmacy benefit managers (PBMs) to administer drug insurance. PBMs typically profit from the difference between a fixed amount and the reimbursement paid to pharmacies (i.e., "spread pricing"). Some states require insurers and PBMs to use cost-plus contracts, in which...