We study the trade-off between bureaucratic costs and reductions in moral hazard induced by managed care tools in healthcare…. Prior authorization reduces a drug’s utilization by 26.8%. Half of marginal beneficiaries are diverted to another related drug, while the other half are diverted to no drug. These policies reduced drug spending by $96 per beneficiary-year (3.6% of drug spending), while generating approximately $10 in paperwork costs. Revealed preference approaches suggest that the net cost savings exceed beneficiaries’ willingness to pay for foregone drugs.