The relationship between plan characteristics and Medicare prescription drug plan bids

Abstract

This article assesses the relationship between plan characteristics and Medicare Prescription Drug Plan (PDP) bids. Medicare PDP information data are used to link plan and geographic data for stand-alone prescription drug plans participating in the Part D programme from 2006 to 2008 (N=5101). Firm fixed effects models are estimated to measure the relationship between plan characteristics including formularies, beneficiary cost sharing and utilization controls and PDP bids. Firm fixed effects models show a negative inelastic relationship between member cost sharing and plan bids. Among the utilization controls, only prior authorization is associated with lower bids. The use of quantity limits and step therapy is associated with higher bids, although this reflects their likely use for nonpreferred brand name medications. Bids are positively related to the number of preferred brand name medications and specialty medications covered, gap coverage of generics and brand name medications and the regional risk score. Lower bids are associated with higher deductibles and market size. © 2012 Taylor & Francis.