Ashley Swanson is an Assistant Professor of Health Care Management at The Wharton School of the University of Pennsylvania .
Seminar topic: “What Do Private Firms Bring to the (Bargaining) Table? Vertical Structure and Negotiated Prices of Pharmaceuticals”
Abstract: In this project, we study imperfect competition and price negotiation in drug markets. We consider drug prices in the Medicare Part D program, in which private prescription drug insurance plans utilize preferred pharmacy networks to reduce costs. We focus particular attention on generic drugs, for which true prices are more readily observable. A model of bargaining between plans and pharmacies motivates two reduced form empirical tests regarding the effects of preferred network contracting on prices. After documenting price levels, price changes, and price dispersion in the market, we test the predictions of the model. First, we show that plans that engage to a greater extent in selective contracting pay lower retail prices for both branded and, critically, generic drugs. Second, we find that plans enrolling price-insensitive patients pay higher retail prices for both branded and generic drugs.