Does medicare reimbursement drive up drug launch prices?

Journal Article (Journal Article)

Medicare reimburses health care providers for the drugs they administer. Since 2005, it has reimbursed based on the past price of the drug. Reimbursement on past prices could motivate manufacturers to set higher launch prices because providers become less sensitive to price and because provider reimbursement is higher if past prices were higher. Using data on drug launch prices between 1999 and 2010, we estimate that reimbursement based on past prices caused launch prices to rise dramatically. The evidence is consistent with the 2018 claim from Medicare’s administrator that it creates a perverse incentive for manufacturers to set higher prices.

Full Text

Duke Authors

Cited Authors

  • Ridley, DB; Lee, CY

Published Date

  • December 1, 2020

Published In

Volume / Issue

  • 102 / 5

Start / End Page

  • 980 - 993

Electronic International Standard Serial Number (EISSN)

  • 1530-9142

International Standard Serial Number (ISSN)

  • 0034-6535

Digital Object Identifier (DOI)

  • 10.1162/rest_a_00849

Citation Source

  • Scopus