Drug prices under the Medicare drug discount card program

In early 2004, the US government initiated the Medicare Drug Discount Card Program (MDDCP), which allowed card subscribers to obtain discounts on prescription drugs. Pharmacy-level prices were posted on the program Web site weekly with the hope of promoting competition among card sponsors by facilitating consumer access to prices. A large panel of pharmacy-level price data collected from this Web site indicates that price dispersion across cards persisted throughout the program. Prices declined initially when consumers were choosing cards, but rose later when subscribers were restricted to commit to their card choices. In contrast, contemporaneous prices from online drug retailers, which were unrelated to the program, rose steadily over time, indicating that program prices evolved in a way different from the general evolution of prices outside the program. Reprinted by permission of the Federal Reserve Bank of St. Louis