The Effect of Pass-Through PBM Contracting and Procurement Auctions on Drug Spending

We study the effect of a state procurement reform that combined a reverse auction for pharmacy benefit management services with a pass-through PBM contract. The state required the winning PBM to pass through pharmacy acquisition costs and 100% of manufacturer rebates, while auction bids were scored using guaranteed discounts, rebate guarantees, and administrative fees applied to historical demand. Using administrative pharmacy claims and a difference-in-differences design, we estimate the effect of the reform on realized prescription drug prices and spending. The results provide evidence on the effects of procurement-based PBM reform and how they change realized pharmaceutical spending.