The brief’s key findings are: Medicare Part D, introduced in 2006, has clearly helped seniors by expanding drug coverage, but a key question is how it has affected the cost of drugs. By boosting demand and shifting market power from manufacturers to insurers, Part D could affect the behavior of both brand-name and generic drug producers. Brand-name firms could be more likely to maintain monopoly power by making small changes to their drugs (“evergreening”); and Generic firms – with no such leverage – might be less likely to introduce alternatives due to a greater loss of bargaining power to insurers. The analysis finds that Part D has, indeed, increased evergreening and reduced generic entry, and both effects have put some upward pressure on drug prices. Overall, though, Part D has kept drug prices lower than they otherwise would have been.
Center for Retirement Research at Boston College