FACTORS AFFECT THE BARGAINING BETWEEN PHARM AND INSURERS

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The medical care marketplace has changed dramatically over the last decade. In the face of escalating costs, insurers have taken a more active role in bargaining with providers over the prices of health care services. Retail pharmacy trade organizations argue that the new insurer bargaining strategies are causing pharmacies to close or curtail services, which may lead to increased overall health care costs. As a result, these organizations have asked for various forms of legislative relief. Unfortunately, there has been little previous research to guide legislators in weighing the pros and cons of these proposals. To fill this information gap, this research will model the bargaining power of pharmacies and insurers in price negotiations and test whether bargaining power varies with characteristics of the pharmacy, insurer, and pharmacy market structure. An empirical model derived from bargaining theory will relate insurer/pharmacy bargaining power to a set of variables that describe characteristics of the pharmacy, insurer, and the pharmacy market. A variant of this model was originally used in Brooks, Dor, and Wong (1997a) to describe hospital and insurer bargaining power. A unique and unprecedented combination of data sources will be used to estimate this model. These sources include the universe of pharmacy claims for the 1994 Medstat Marketscan Database; a database containing average retail pharmacy cash prices and costs at the three-digit zip code-level in 1994 from Source Informatics, inc,; a database containing the name and address of all licensed pharmacies in the U.S. in 1994 from the National Council of Prescription Drug Programs (NCPDP); and zip code level socioeconomic data from the Census Bureau.