Lagged-Price Reimbursement Contracts: The Impact of Medicare Part B on Pharmaceutical Price Growth (WP-23-39)
Angelique Acquatella, Keith Marzilli Ericson, and Amanda StarcThe 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.