Pharmacy benefit managers (PBMs) potentially lower costs associated with prescription drugs through increased bargaining power with manufacturers. PBMs engage in selective contracting with pharmacies which has the potential to reduce retail competition, leading to increased prices. Proponents of "Any Willing Provider (AWP)" and "Freedom of Choice (FOC)" laws limiting this selective contracting claim increased retail competition will lower prescription drug spending. Examining the passage of such laws over the period 1991-2009, we find that AWP laws increase spending on prescription drugs by ~5% beyond any pre-existing trends in spending while FOC laws have no significant effect. (JEL: L42, I13, I18, K21).

doi.org/10.1093/aler/ahu013, hdl.handle.net/1765/89386
American Law and Economics Review
Erasmus University Rotterdam

Klick, J.M, & Wright, J.D. (2015). The effect of anywilling provider and freedom of choice laws on prescription drug expenditures. American Law and Economics Review, 17(1), 192–213. doi:10.1093/aler/ahu013