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Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market

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Listed:
  • Charles Gray
  • Abby E. Alpert
  • Neeraj Sood

Abstract

The pharmaceutical market has experienced a massive wave of vertical integration between pharmacy benefit managers (PBMs) and health insurers in recent years. Using a unique dataset on insurer-PBM contracts, we document increasing vertical integration in Medicare Part D–vertically integrated insurers' market share increased from about 30% to 80% between 2010 and 2018. Next, we evaluate a large insurer-PBM merger in 2015 to assess the trade-offs of vertical integration–harms to competition due to input and customer foreclosure on the one hand and improved efficiency on the other. We find premium increases after the merger for insurers who bought PBM services from rivals, which is consistent with vertically integrated PBMs raising costs through input foreclosure.

Suggested Citation

  • Charles Gray & Abby E. Alpert & Neeraj Sood, 2023. "Disadvantaging Rivals: Vertical Integration in the Pharmaceutical Market," NBER Working Papers 31536, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31536
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    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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