Working Paper: NBER ID: w31834
Authors: Angelique Acquatella; Keith Marzilli Ericson; Amanda Starc
Abstract: We examine cost-plus lagged-price reimbursement contracts, focusing on Medicare Part B's payment for physician-administered drugs. Our theoretical model shows that lagged-price reimbursement can raise launch prices but lower prices in later periods. While previous research showed Part B increased launch prices, we estimate its effect on later prices (net of rebates). Drugs more exposed to Medicare have lower price growth. A drug with above median Part B exposure has a 10% lower price after 3 years than a below median exposure drug that launched at the same price, with a larger effect for newly approved molecules.
Keywords: Medicare; Pharmaceutical Pricing; Reimbursement Contracts
JEL Codes: H57; I11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Medicare Part B exposure (I18) | pharmaceutical price dynamics (D49) |
| lagged-price reimbursement (J33) | higher launch prices (D49) |
| lagged-price reimbursement (J33) | lower subsequent prices (D40) |
| Medicare exposure (I18) | slower price growth (E31) |
| drug approval timing (C41) | pricing strategies (D49) |