Working Paper: NBER ID: w28755
Authors: Craig Garthwaite; Rebecca Sachs; Ariel Dora Stern
Abstract: Pharmaceutical innovation policy involves managing a tradeoff between high prices for new products in the short-term and stronger incentives to develop products for the future. Prior research has documented a causal relationship between market size and pharmaceutical research and development (R&D) activities. The existing literature, however, provides no evidence of how this relationship varies across markets. We investigate whether recent expansions in state Medicaid programs caused an increase in R&D. We find no evidence of a response, potentially a result of Medicaid’s low reimbursement for pharmaceuticals, suggesting low(er) price markets may have different dynamics with respect to innovation policy.
Keywords: pharmaceutical innovation; Medicaid expansions; R&D investments; market size
JEL Codes: H01; I43; L53; O38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Medicaid expansions (I18) | R&D investments (O32) |
| Market size (L25) | R&D investments (O32) |
| Lower reimbursement rates (I13) | R&D investments (O32) |
| Medicaid expansions (I18) | Anticipated increase in demand (J23) |
| Medicaid expansions (I18) | No change in R&D activities (O39) |
| Medicare Part D expansions (H51) | R&D investments (O32) |