Vertical Contracting and Integration in the Pharmaceutical Market

Abstract

This dissertation consists of three chapters studying vertical contracting and vertical integration involving insurers, pharmacy benefit managers (PBMs), and pharmacies in the context of Medicare Part D. The first chapter examines two recent vertical mergers in the pharmaceutical market and how they affected premium competition. I find evidence consistent with incentives of a vertically integrated firm for raising rivals’ costs in one merger, and evidence consistent with cost savings and efficiency gains from vertical integration in the other. The second chapter investigates the impacts of pharmacy network changes on medication adherence and mortality. We find that losing in-network pharmacy access leads to an immediate drop in adherence to statins of up to 4.1 percentage points during the first two quarters, and long-term decreases in adherence rates of over 2.5 percentage points. Additionally, all-cause cumulative mortality rates rise by 0.9 percentage point during the first year after pharmacy access disruptions, followed by an additional increase of 1.5 percentage points by the end of the second year. The mortality impacts are particularly pronounced for female, low-income, and sicker patients. The third chapter examines offsetting effects of stable pharmacy access on medical spending. I find limited to no effects of pharmacy network changes on inpatient visits and stays at skilled nursing facilities and moderate increases of 1.9-3.5 percent in spending on outpatient service categories including hospital outpatient services, durable medical equipment, and outpatient drugs. Pharmacy network disruptions also result in increases in utilization of hospice care.