American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
A Dose of Managed Care: Controlling Drug Spending in Medicaid
American Economic Journal: Applied Economics
vol. 13,
no. 1, January 2021
(pp. 170–97)
Abstract
We study the effect of privatizing Medicaid drug benefits on drug prices and utilization. Drug spending would decrease by 21.3 percent if private insurers administered all drug benefits. One-third of the decrease is driven by private insurers' ability to negotiate prices with pharmacies. The remaining two-thirds is driven by the greater use of lower cost drugs, such as generics, and is only realized in states that give private insurers the flexibility to design drug benefits. Privatization does not reduce prescriptions per enrollee and spending cuts are smaller for drugs that lower medical spending.Citation
Dranove, David, Christopher Ody, and Amanda Starc. 2021. "A Dose of Managed Care: Controlling Drug Spending in Medicaid." American Economic Journal: Applied Economics, 13 (1): 170–97. DOI: 10.1257/app.20190165Additional Materials
JEL Classification
- G22 Insurance; Insurance Companies; Actuarial Studies
- H51 National Government Expenditures and Health
- I11 Analysis of Health Care Markets
- I13 Health Insurance, Public and Private
- I18 Health: Government Policy; Regulation; Public Health
- I38 Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
- L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology
Medicaid Managed Care and Prescription Drug Prices
In this comment, I re-estimate some of the models presented in Dranove et al. (2021) to show the sensitivity of estimates to a couple of regression model specification choices, and I conduct a different analysis that seems conceptually important, but which was omitted from Dranove et al. (2021). In both analyses, I focus on the point-of-sales price of prescription drugs and how that price varies between Medicaid managed care organizations (MCO) and public, fee-for-service (FFS) purchase.
Go to the link below to see results and interpretation.