Health Care Reform and Firm Dynamics: Evidence from Medicare Part D and the Retail Pharmacy Industry -- by Brandyn F. Churchill, Georgina Cisneros, Kelli R. Marquardt

Health care reforms are often enacted before implementation, creating uncertainty that can shape firms’ decisions. We examine how Medicare Part D affected the retail pharmacy industry using 2000-2009 establishment-level data, leveraging the fact that Part D disproportionately affected counties with larger elderly populations. Consistent with predictions from a conceptual model in which pre-implementation uncertainty discourages entry and lower post-implementation margins prevent full recovery, we find that Part D was associated with a 5-percent reduction in pharmacies, driven by fewer openings rather than more closures. We also find suggestive evidence that reduced pharmacy access dampened Part D’s mortality benefits.