Common Agent or Double Agent? Pharmacy Benefit Managers in the Prescription Drug Market / Rena M. Conti, Brigham Frandsen, Michael L. Powell, James B. Rebitzer.

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Conti, Rena M

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w28866.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: In the U.S., pharmacy benefit managers (PBMs) manage prescription drug purchases for payers. Firms selling branded pharmaceuticals bid for preferred slots on the PBM's formulary by offering rebates off of list price. We find that PBMs enhance efficiency, but the gains do not accrue to consumers or drug makers. Our analysis offers insights into otherwise puzzling questions. Why do drug makers pay rebates to PBMs? Why do payers delegate formulary operations to a few large PBMs? Why are list prices so high? Why might PBMs vertically integrate with payers? Our framework also offers insights into proposals for market reform.

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May 2021.

In the U.S., pharmacy benefit managers (PBMs) manage prescription drug purchases for payers. Firms selling branded pharmaceuticals bid for preferred slots on the PBM's formulary by offering rebates off of list price. We find that PBMs enhance efficiency, but the gains do not accrue to consumers or drug makers. Our analysis offers insights into otherwise puzzling questions. Why do drug makers pay rebates to PBMs? Why do payers delegate formulary operations to a few large PBMs? Why are list prices so high? Why might PBMs vertically integrate with payers? Our framework also offers insights into proposals for market reform.