Working Paper: NBER ID: w31536
Authors: 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.
Keywords: No keywords provided
JEL Codes: I11; I13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher concentration of PBMs (L65) | greater foreclosure risks (G21) |
| vertical integration of PBMs and insurers (L14) | increase in premiums for non-vertically integrated insurers (G22) |
| input foreclosure (G21) | increase in premiums for non-vertically integrated insurers (G22) |
| exit of a significant standalone PBM (P30) | further premium increases for former clients (G52) |