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Medicare Reimbursements and Shortages of Sterile Injectable Pharmaceuticals

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  • Ali Yurukoglu

Abstract

This paper investigates the rise in shortages of sterile injectable pharmaceutical drugs in the US. I examine a policy change in 2005 that differentially reduced Medicare Part B payments for pharmaceuticals. Drugs whose payments dropped more due to the policy change have had greater increases in shortages. I interpret these results using a model of entry and capacity choice with supply uncertainty. I conclude that Medicare’s generous payments before the policy change provided manufacturers with incentives to invest in capacity or induced entry. The effect on total welfare of lowering payments is theoretically ambiguous.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17987.

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Date of creation: Apr 2012
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Handle: RePEc:nbr:nberwo:17987

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  1. Jeffrey Clemens & Joshua D. Gottlieb, 2014. "Do Physicians' Financial Incentives Affect Medical Treatment and Patient Health?," American Economic Review, American Economic Association, vol. 104(4), pages 1320-49, April.
  2. Crawford, Gregory S & Yurukoglu, Ali, 2011. "The Welfare Effects of Bundling in Multichannel Television Markets," CEPR Discussion Papers 8370, C.E.P.R. Discussion Papers.
  3. Dana, James D, Jr, 2001. "Competition in Price and Availability When Availability is Unobservable," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 497-513, Autumn.
  4. Carlton, Dennis W, 1978. "Market Behavior with Demand Uncertainty and Price Inflexibility," American Economic Review, American Economic Association, vol. 68(4), pages 571-87, September.
  5. Ernst R. Berndt, 2002. "Pharmaceuticals in U.S. Health Care: Determinants of Quantity and Price," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 45-66, Fall.
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Cited by:
  1. Jeffrey Clemens & Joshua D. Gottlieb, 2013. "Bargaining in the Shadow of a Giant: Medicare's Influence on Private Payment Systems," NBER Working Papers 19503, National Bureau of Economic Research, Inc.
  2. Abby Alpert & Mark Duggan & Judith K. Hellerstein, 2013. "Perverse Reverse Price Competition: Average Wholesale Prices and Medicaid Pharmaceutical Spending," NBER Working Papers 19367, National Bureau of Economic Research, Inc.
  3. Jeffrey Clemens & Joshua D. Gottlieb, 2014. "Do Physicians' Financial Incentives Affect Medical Treatment and Patient Health?," American Economic Review, American Economic Association, vol. 104(4), pages 1320-49, April.

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