TY  - JOUR
AU  - Duggan,Mark
AU  - Morton,Fiona Scott
TI  - The Effect of Medicare Part D on Pharmaceutical Prices and Utilization
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13917
PY  - 2008
Y2  - April 2008
UR  - http://www.nber.org/papers/w13917
L1  - http://www.nber.org/papers/w13917.pdf
N1  - Author contact info:
Mark Duggan
University of Maryland
Department of Economics
3115L Tydings Hall
College Park, MD  20742
Tel: 301/405-3532
Fax: 301/405-3542
E-Mail: duggan@econ.bsos.umd.edu

Fiona Scott Morton
Yale School of Management
Box 208200
New Haven, CT 06520-8200
Tel: 203/432-5569
Fax: 203/432-6974
E-Mail: fiona.scottmorton@yale.edu
AB  - On January 1, 2006, the federal government began providing insurance coverage for Medicare recipients' prescription drug expenditures through a new program known as Medicare Part D.  Rather than setting pharmaceutical prices itself, the government contracted with private insurance plans to provide this coverage.  Enrollment in Part D was voluntary, with each Medicare recipient allowed to choose from one of the private insurers with a contract to offer coverage in her geographic region.  This paper evaluates the effect of this program on the price and utilization of pharmaceutical treatments.  Theoretically, it is ambiguous whether the expansion in insurance coverage would increase or reduce pharmaceutical prices.  Insurance-induced reductions in demand elasticities would predict an increase in pharmaceutical firms' optimal prices.  However, Part D plans could potentially negotiate price discounts through their ability to influence the market share of specific treatments.  Using data on product-specific prices and quantities sold in each year in the U.S., our findings indicate that Part D substantially lowered the average price and increased the total utilization of prescription drugs by Medicare recipients.  Our results further suggest that the magnitude of these average effects varies across drugs as predicted by economic theory.
ER  -