Which Markets (Don'T) Drive Pharmaceutical Innovation? Evidence from U.S. Medicaid Expansions

47 Pages Posted: 10 May 2021 Last revised: 26 Jan 2023

See all articles by Craig Garthwaite

Craig Garthwaite

Northwestern University; National Bureau of Economic Research (NBER)

Rebecca Sachs

George Washington University - Law School

Ariel Dora Stern

Harvard Business School

Date Written: May 2021

Abstract

Pharmaceutical innovation policy involves managing a tradeoff between high prices for new products in the short-term and stronger incentives to develop products for the future. Prior research has documented a causal relationship between market size and pharmaceutical research and development (R&D) activities. The existing literature, however, provides no evidence of how this relationship varies across markets. We investigate whether recent expansions in state Medicaid programs caused an increase in R&D. We find no evidence of a response, potentially a result of Medicaid’s low reimbursement for pharmaceuticals, suggesting low(er) price markets may have different dynamics with respect to innovation policy.

Suggested Citation

Garthwaite, Craig and Sachs, Rebecca and Stern, Ariel Dora, Which Markets (Don'T) Drive Pharmaceutical Innovation? Evidence from U.S. Medicaid Expansions (May 2021). NBER Working Paper No. w28755, Available at SSRN: https://ssrn.com/abstract=3842730

Craig Garthwaite (Contact Author)

Northwestern University ( email )

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National Bureau of Economic Research (NBER)

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Rebecca Sachs

George Washington University - Law School ( email )

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Ariel Dora Stern

Harvard Business School ( email )

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