Which Markets (Don&Apos;T) Drive Pharmaceutical Innovation? Evidence from U.S. Medicaid Expansions

54 Pages Posted: 10 May 2021 Last revised: 28 Jul 2021

See all articles by Craig Garthwaite

Craig Garthwaite

Northwestern University

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.

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Suggested Citation

Garthwaite, Craig and Sachs, Rebecca and Stern, Ariel Dora, Which Markets (Don&Apos;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 )

2001 Sheridan Road
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United States

Rebecca Sachs

George Washington University - Law School ( email )

2000 H Street, N.W.
Washington, DC 20052
United States

Ariel Dora Stern

Harvard Business School ( email )

Morgan Hall 433
Harvard Business School
Boston, MA MASSACHUSETTS 02163
United States
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