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Lagged-Price Reimbursement Contracts: The Impact of Medicare Part B on Pharmaceutical Price Growth

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  • 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.

Suggested Citation

  • Angelique Acquatella & Keith Marzilli Ericson & Amanda Starc, 2023. "Lagged-Price Reimbursement Contracts: The Impact of Medicare Part B on Pharmaceutical Price Growth," NBER Working Papers 31834, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31834
    Note: AG EH
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    References listed on IDEAS

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    1. Elena Krasnokutskaya & Katja Seim, 2011. "Bid Preference Programs and Participation in Highway Procurement Auctions," American Economic Review, American Economic Association, vol. 101(6), pages 2653-2686, October.
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    More about this item

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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