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Lagged-Price Reimbursement Contracts: The Impact of Medicare Part B on Pharmaceutical Price Growth (WP-23-39)

Angelique Acquatella, Keith Marzilli Ericson, and Amanda Starc

The researchers examine cost-plus lagged-price reimbursement contracts, focusing on Medicare Part B's payment for physician-administered drugs. Their 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, they 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 three years than a below median exposure drug that launched at the same price, with a larger effect for newly approved molecules.

Angelique Acquatella, Research Faculty, Toulouse School of Economics

Keith Marzilli Ericson, Professor, Markets, Public Policy, and Law, Boston University

Amanda Starc, Associate Professor of Strategy and IPR Associate, Northwestern University

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