Pharmacy Networks, Prescription Drug Access, and Patient Outcomes

Abstract

This thesis comprises three essays on pharmacy networks, examining their roles in health outcomes, consumer welfare, and patient selection. The first chapter analyzes the effects of losing pharmacy access due to periodic network rearrangements by Medicare Part D prescription drug plans, whereas the last two chapters focus on preferred pharmacies---a selective tier of pharmacies that provide reduced cost-sharing for consumers. Overall, my results reveal that the design of both general and preferred pharmacy networks significantly affects various patient outcomes, including drug utilization and mortality. In the first chapter, I leverage a matched difference-in-differences research design to demonstrate that disrupting in-network access to pharmacies leads to an immediate 5% decline in medication adherence. Although adherence rates for affected patients partially recover over time, their mortality rates increase by 23% after one year. The second chapter investigates a different type of network shock---the initial adoption of a preferred pharmacy tier. I show that one year after a pharmacy gains preferred status, its patients experience a 15% reduction in out-of-pocket costs, a 1.3% increase in days' supply of prescriptions, and a 11.6% decline in mortality. I then estimate a model of plan and pharmacy demand to derive a measure of consumer willingness to pay for pharmacy networks based on revealed preferences. Counterfactual analyses indicate that consumers vastly undervalue the cost-sharing and mortality benefits of preferred pharmacies. Given their significant impact on healthcare provision, the third chapter studies whether preferred pharmacy networks are employed by insurance plans as a tool for consumer screening. Using an instrumental variable approach, I find that variation in local enrollees' exposure to Medicare's annual risk adjustment updates incentivizes plans to contract with pharmacies that serve more profitable patients. This underscores the need for regulatory reforms to ensure equitable access to the advantages offered by preferred pharmacy networks.