Working Paper: NBER ID: w30998
Authors: Casey B. Mulligan
Abstract: This paper provides the first quantitative economic models of pharmacy benefit management regulation. The price-theoretic models allow for various market frictions and imperfections including market power, coordination costs, tax distortions, and incomplete innovation incentives. A rigorous economic interpretation is provided for what are sometimes called “rebate walls” or “rebate traps.” Applicable types of regulation include rebate rules, such as the HHS rebate rule and the Insulin Act; disclosure requirements such as the PBM Transparency Act of 2023; and pharmacy contract restrictions such as the CMS Medicare rule to take effect in 2024. Utilization of brands and generics, plan spending, cost sharing, spillovers to nonpharmacy medical spending, government budgets, and the pace of drug innovation are among the outcomes tracked by the open-source model.
Keywords: Pharmacy Benefit Management; Rebate Rules; Drug Utilization; Economic Models
JEL Codes: D43; D71; I11; I13; L14; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Rebate rules (H20) | Increase in net brand prices (D49) |
| Rebate rules (H20) | Increase in drug plan premiums (H51) |
| Rebate rules (H20) | Reduction in drug utilization for insulin (H53) |
| Rebate rules (H20) | Reduction in drug utilization generally (H51) |
| Rebate rules (H20) | Disincentives for plans to encourage drug use (H53) |
| Rebate rules (H20) | Reduction in pace of drug innovation (O39) |
| Rebate rules (H20) | Changes in market dynamics (D49) |