Should Medicare adopt the Veterans health administration formulary?

SUMMARY Since January 2006 all Medicare beneficiaries have been eligible to obtain outpatient prescription drug coverage through private stand‐alone drug plans (PDPs). We estimate a model of beneficiary demand for PDPs and use it to compute the loss of consumer surplus due to tightening PDP formular...

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Bibliographic Details
Published in:Health economics 2012-05, Vol.21 (5), p.485-495
Main Authors: Frakt, Austin B., Pizer, Steven D., Feldman, Roger
Format: Article
Language:English
Subjects:
Beneficiaries
Consumers
Cost Savings
demand elasticity
Drug formularies
Formularies as Topic
formulary
Health
Health economics
Humans
Insurance Coverage
Insurance, Pharmaceutical Services - economics
Medicare
Medicare Part D - economics
Military hospitals
Models, Econometric
Prescription drug plans
Prescription Drugs
Prescriptions
Savings
Studies
United States
United States Department of Veterans Affairs
welfare analysis
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Summary:SUMMARY Since January 2006 all Medicare beneficiaries have been eligible to obtain outpatient prescription drug coverage through private stand‐alone drug plans (PDPs). We estimate a model of beneficiary demand for PDPs and use it to compute the loss of consumer surplus due to tightening PDP formularies to the level found in the Veterans Health Administration (VA). Under a generous assumption of cost savings attributed to increased bargaining leverage associated with exclusion of more drugs from formularies, we find the loss in consumer surplus to be smaller than the financial savings that could be shared between Medicare and beneficiaries. According to our estimates, Medicare beneficiaries could be compensated for the loss in consumer surplus associated with tighter PDP formularies with the savings generated by such formularies. Copyright © 2011 John Wiley & Sons, Ltd.
ISSN:1057-9230
1099-1050
DOI:10.1002/hec.1733