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The Effect of Medicare Part D on Pharmaceutical Prices and Utilization

  • Mark Duggan
  • Fiona Scott Morton

Medicare Part D began coverage of prescription drugs in 2006. Rather than setting pharmaceutical prices, the government contracted with private insurers to provide drug coverage. Theory suggests that additional insured consumers will raise the optimal price of a branded drug, while the insurer's ability to move demand to substitute treatments may lower prices. We estimate the program's effect on the price and utilization of pharmaceutical treatments. We find that Part D enrollees paid substantially lower prices than while uninsured, and increased their utilization of prescription drugs. We find relative price declines only for drugs with significant therapeutic competition. (L18, L11, L65)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 100 (2010)
Issue (Month): 1 (March)
Pages: 590-607

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Handle: RePEc:aea:aecrev:v:100:y:2010:i:1:p:590-607
Note: DOI: 10.1257/aer.100.1.590
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  1. David Card & Carlos Dobkin & Nicole Maestas, 2008. "The Impact of Nearly Universal Insurance Coverage on Health Care Utilization: Evidence from Medicare," American Economic Review, American Economic Association, vol. 98(5), pages 2242-58, December.
  2. Nina Pavcnik, 2002. "Do Pharmaceutical Prices Respond to Potential Patient Out-of-Pocket Expenses?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 469-487, Autumn.
  3. Leemore S. Dafny, 2005. "How Do Hospitals Respond to Price Changes?," American Economic Review, American Economic Association, vol. 95(5), pages 1525-1547, December.
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