IDEAS home Printed from https://ideas.repec.org/a/aea/aerins/v4y2022i2p191-208.html
   My bibliography  Save this article

Insurance Design and Pharmaceutical Innovation

Author

Listed:
  • Leila Agha
  • Soomi Kim
  • Danielle Li

Abstract

This paper studies how insurance coverage policies impact pharmaceutical innovation. In the United States, most patients obtain prescription drugs through insurance plans administered by Pharmacy Benefit Managers (PBMs). Beginning in 2012, PBMs began refusing to provide coverage for many newly approved drugs when cheaper alternatives were available. We document a shift in pharmaceutical R&D strategies after this policy took effect: therapeutic classes at greater risk of exclusion experienced a relative reduction in investments. This shift reduced development of drug candidates that appear more incremental: that is, those in drug classes with more preexisting therapies and less scientifically novel research.

Suggested Citation

  • Leila Agha & Soomi Kim & Danielle Li, 2022. "Insurance Design and Pharmaceutical Innovation," American Economic Review: Insights, American Economic Association, vol. 4(2), pages 191-208, June.
    • Handle: RePEc:aea:aerins:v:4:y:2022:i:2:p:191-208
    DOI: 10.1257/aeri.20210063
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/aeri.20210063
    Download Restriction: no
    File URL: https://doi.org/10.3886/E141701V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/aeri.20210063.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/aeri.20210063.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/aeri.20210063?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Russell J. Funk & Jason Owen-Smith, 2017. "A Dynamic Network Measure of Technological Change," Management Science, INFORMS, vol. 63(3), pages 791-817, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kurt R. Brekke & Dag Morten Dalen & Odd Rune Straume, 2022. "The price of cost-effectiveness thresholds," NIPE Working Papers 5/2022, NIPE - Universidade do Minho.
    2. Kelli Marquardt, 2024. "Liran Einav and Amy Finkelstein: We’ve got you covered: rebooting American health care," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 59(3), pages 190-192, July.
    3. Chiang, Chia-Chun & Niehaus, Greg, 2024. "Market discipline and policy loans," Journal of Banking & Finance, Elsevier, vol. 159(C).
    4. Brekke, Kurt R. & Dalen, Dag Morten & Straume, Odd Rune, 2023. "The price of cost-effectiveness thresholds under therapeutic competition in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 90(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mueller, Elisabeth & Boeing, Philipp, 2024. "Global influence of inventions and technology sovereignty," ZEW Discussion Papers 24-024, ZEW - Leibniz Centre for European Economic Research, revised 2024.
    2. Ziyan Zhang & Junyan Zhang & Pushi Wang, 2024. "Measurement of disruptive innovation and its validity based on improved disruption index," Scientometrics, Springer;Akadémiai Kiadó, vol. 129(11), pages 6477-6531, November.
    3. Julius Koschnick, 2025. "Teacher-directed scientific change:The case of the English Scientific Revolution," Working Papers 0274, European Historical Economics Society (EHES).
    4. Biggi, Gianluca & Giuliani, Elisa & Martinelli, Arianna & Benfenati, Emilio, 2022. "Patent Toxicity," Research Policy, Elsevier, vol. 51(1).
      • Gianluca Biggi & Elisa Giuliani & Arianna Martinelli, 2020. "Patent Toxicity," LEM Papers Series 2020/33, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    5. Guoqiang Liang & Ying Lou & Haiyan Hou, 2022. "Revisiting the disruptive index: evidence from the Nobel Prize-winning articles," Scientometrics, Springer;Akadémiai Kiadó, vol. 127(10), pages 5721-5730, October.
    6. Zhang, Qianxiang & Lin, Boqiang, 2024. "The effect of energy efficiency retrofits on radical innovation: From the perspective of supply chain," Energy, Elsevier, vol. 311(C).
    7. Zhou, Meihua & Angelopoulos, Spyros & Ou, Carol & Liu, Hongwei & Liang, Zhouyang, 2023. "Optimization of dynamic product offerings on online marketplaces: A network theory perspective," Other publications TiSEM 75d71155-88bf-4ff7-aba1-9, Tilburg University, School of Economics and Management.
    8. Guderian, Carsten C. & Posth, Jan-Alexander & Grob, Linus, 2023. "Investment decisions and passive portfolio construction utilizing patent analytics: A multi-case study on COVID-19 treatment technologies," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 66-87.
    9. Bornmann, Lutz & Tekles, Alexander, 2021. "Convergent validity of several indicators measuring disruptiveness with milestone assignments to physics papers by experts," Journal of Informetrics, Elsevier, vol. 15(3).
    10. Anne Kavalerchik, 2025. "Novelty and interdisciplinarity in criminology: how data-drivenness connects both," Scientometrics, Springer;Akadémiai Kiadó, vol. 130(2), pages 665-678, February.
    11. Macher, Jeffrey T. & Rutzer, Christian & Weder, Rolf, 2024. "Is there a secular decline in disruptive patents? Correcting for measurement bias," Research Policy, Elsevier, vol. 53(5).
    12. Tong, Tong & Wang, Wanru & Ye, Fred Y., 2024. "A complement to the novel disruption indicator based on knowledge entities," Journal of Informetrics, Elsevier, vol. 18(2).
    13. Boeing, Philipp & Brandt, Loren & Dai, Ruochen & Lim, Kevin & Peters, Bettina, 2024. "The anatomy of Chinese innovation: Insights on patent quality and ownership," ZEW Discussion Papers 24-016, ZEW - Leibniz Centre for European Economic Research.
    14. Peter Sjögårde & Fereshteh Didegah, 2022. "The association between topic growth and citation impact of research publications," Scientometrics, Springer;Akadémiai Kiadó, vol. 127(4), pages 1903-1921, April.
    15. Shuo Xu & Liyuan Hao & Xin An & Hongshen Pang & Ting Li, 2020. "Review on emerging research topics with key-route main path analysis," Scientometrics, Springer;Akadémiai Kiadó, vol. 122(1), pages 607-624, January.
    16. Yi Zhao & Chengzhi Zhang, 2025. "A review on the novelty measurements of academic papers," Scientometrics, Springer;Akadémiai Kiadó, vol. 130(2), pages 727-753, February.
    17. Tomomi Kito & Nagi Moriya & Junichi Yamanoi, 2021. "Inter-organisational patent opposition network: how companies form adversarial relationships," The Japanese Economic Review, Springer, vol. 72(1), pages 145-166, January.
    18. Christian Leibel & Lutz Bornmann, 2024. "What do we know about the disruption index in scientometrics? An overview of the literature," Scientometrics, Springer;Akadémiai Kiadó, vol. 129(1), pages 601-639, January.
    19. Zhongyi Wang & Keying Wang & Jiyue Liu & Jing Huang & Haihua Chen, 2022. "Measuring the innovation of method knowledge elements in scientific literature," Scientometrics, Springer;Akadémiai Kiadó, vol. 127(5), pages 2803-2827, May.
    20. Wu, Lingfei & Kittur, Aniket & Youn, Hyejin & Milojević, Staša & Leahey, Erin & Fiore, Stephen M. & Ahn, Yong-Yeol, 2022. "Metrics and mechanisms: Measuring the unmeasurable in the science of science," Journal of Informetrics, Elsevier, vol. 16(2).

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aerins:v:4:y:2022:i:2:p:191-208. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.