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

Retail pharmacies fill over 4 billion prescriptions each year and are the most frequent healthcare touchpoint in the U.S. Yet 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 2000-2009 National Establishment Time-Series data and a difference-in-differences strategy leveraging pre-period variation in the share of the customers likely enrolled in Medicare. The two-year period between Part D’s passage and implementation was marked by substantial uncertainty about its financial implications for pharmacies. Though Part D ultimately increased prescription utilization, it also reduced drug prices and raised administrative costs. We find that Part D was associated with a 5-percent reduction in the number of pharmacies, driven entirely by a reduction in the number of openings rather than an increase in closures. Finally, we find suggestive evidence that the mortality reduction attributable to Part D was smaller in counties that experienced a reduction in pharmacy access.