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Drug prices under the medicare drug discount card program

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Author Info
Emin M. Dinlersoz
Rubén Hernández-Murillo
Han Li
Roger Sherman

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Abstract

In early 2004, the U.S. government initiated the Medicare Drug Discount Card Program (MDDCP), which allowed card subscribers to obtain discounts on prescription drugs. Pharmacy-level prices were posted on the program website weekly with the hope or promoting competition among card sponsors by facilitating consumer access to prices. A large panel of pharmacy-level price data collected from this website indicates that price dispersion across cards persisted throughout the program. Prices declined initially when consumers were choosing cards, but rose later when subscribers were restricted to commit to their card choices. In contrast, contemporaneous prices from online drug retailers, which were unrelated to the program, rose steadily over time, indicating that program prices evolved in a way different from the general evolution of prices outside the program.

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Publisher Info
Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2008)
Issue (Month): Nov ()
Pages: 643-666
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Handle: RePEc:fip:fedlrv:y:2008:i:nov:p:643-666:n:v.90no.6

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Related research
Keywords: Drugs ; Medical care; Cost of;

References listed on IDEAS
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  1. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July. [Downloadable!] (restricted)
  2. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring. [Downloadable!] (restricted)
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  3. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May. [Downloadable!] (restricted)
  4. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June. [Downloadable!] (restricted)
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  5. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September. [Downloadable!] (restricted)
  6. Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August. [Downloadable!] (restricted)
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