“Health Care Reform and Firm Dynamics: Evidence from Medicare Part D and the Retail Pharmacy Industry” with Brandyn F. Churchill

Retail pharmacies fill over 4 billion prescriptions each year and are the most frequent service delivery touchpoint in the U.S. health care system. Despite this important role, relatively little is known about the economic factors driving pharmacy access. We provide new evidence on how Medicare Part D shaped the retail pharmacy industry using 2000-2007 National Establishment Time-Series data and a difference-in-differences identification strategy leveraging variation in the share of the customer base likely comprised of Medicare beneficiaries. We find that Medicare Part D was associated with a 5 percent reduction in the number of pharmacies due to a reduction in the number of pharmacy openings; we do not detect a change in pharmacy closures. Next, we show that this reduction was most pronounced in racial and ethnic minority communities. Finally, we show that existing pharmacies located in previously competitive markets benefitted from reduced market entry.