Bargaining between Medicare Part D Prescription Drug Plans (PDPs) and Independent Pharmacies in the U.S.

Presenter: Yang Xie, University of Iowa

Abstract

BACKGROUND
Built on a theoretical bargaining model based on the principles of the Nash bargaining solution, this study provides systematic empirical evidence to understand the environment, incentives, behaviors and bargaining process and outcomes of Medicare Part D PDPs and independent pharmacies in the U.S. and shed a light on the critical issue of independent pharmacy collective bargaining law.
Specific aims:
1.To understand what activities are performed regularly by a pharmacy in evaluating and signing a PDP contract.
2.To understand the relationships between the characteristics of the bargaining parties, the bargaining process, and bargaining outcomes between independent pharmacies and PDPs.

METHODS
Research Design: Cross-sectional data is collected through a mail-in survey of a national random sample of 1,600 independent pharmacies. National Council for Prescription Drug Programs (NCPDP) Pharmacy database is used to calculate the pharmacy concentration in each zip code.

Analysis: The key independent variable is the independent pharmacy’s local market structure, measured by pharmacy concentration and percentage of independent pharmacies in a given zip code. The pharmacy concentration and percentage of independent pharmacies variables will be created using the NCPDP Pharmacy Database and linked to the main dataset collected through mail survey using the zip code each pharmacy provided in the survey.
Another key analysis will be describing variation in pharmacy “bargaining power.” It is built on a theoretical bargaining model based on the principles of the Nash bargaining solution. Pharmacy "bargaining power" is operationalized as the share of the pharmacy retail margin per prescription that the pharmacy retains from the insurer (prescription retail price - prescription cost)/(insurer reimbursement - prescription cost). This measure of bargaining power is between 0 and 1. Pharmacy bargaining power is highest (1) when the insurer pays the pharmacy retail price and lowest (0) when the insurer reimburses at a level less than or equal to pharmacy cost. In this study we will measure pharmacy bargaining power by asking the pharmacy to report the average acquisition costs (prescription cost), cash prices (prescription retail price) of two most popular brand name drugs and two post popular generic drugs and the reimbursement rates from their two largest PDP contracts. Using the calculated “bargaining power” measure, we will examine what pharmacy characteristics affect its bargaining power, whether pharmacies with better service quality get better terms, etc.

RESULTS
We are currently in the process of collecting data through mail survey, which is expected to be completed by Dec. 2008. Analysis will be conducted in Jan.2009 and results will be presented at 2009 7th World Congress on Health Economics.