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Forum for Health Economics & Policy

Editor-in-Chief: Goldman, Dana

2 Issues per year


SCImago Journal Rank (SJR) 2015: 0.216
Source Normalized Impact per Paper (SNIP) 2015: 0.197
Impact per Publication (IPP) 2015: 0.222

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1558-9544
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The Long-Term Impact of Price Controls in Medicare Part D

Gigi Moreno
  • Precision Health Economics, Los Angeles, CA, USA
/ Emma van Eijndhoven
  • Precision Health Economics, Los Angeles, CA, USA
/ Jennifer Benner
  • Precision Health Economics, Los Angeles, CA, USA
/ Jeffrey Sullivan
  • Precision Health Economics, Los Angeles, CA, USA
  • :
Published Online: 2017-01-20 | DOI: https://doi.org/10.1515/fhep-2016-0011

Abstract

Price controls for prescription drugs are once again at the forefront of policy discussions in the United States. Much of the focus has been on the potential short-term savings – in terms of lower spending – although evidence suggests price controls can dampen innovation and adversely affect long-term population health. This paper applies the Health Economics Medical Innovation Simulation, a microsimulation of older Americans, to estimate the long-term impacts of government price setting in Medicare Part D, using pricing in the Federal Veterans Health Administration program as a proxy. We find that VA-style pricing policies would save between $0.1 trillion and $0.3 trillion (US$2015) in lifetime drug spending for people born in 1949–2005. However, such savings come with social costs. After accounting for innovation spillovers, we find that price setting in Part D reduces the number of new drug introductions by as much as 25% relative to the status quo. As a result, life expectancy for the cohort born in 1991–1995 is reduced by almost 2 years relative to the status quo. Overall, we find that price controls would reduce lifetime welfare by $5.7 to $13.3 trillion (US$2015) for the US population born in 1949–2005.

Keywords: innovation; Medicare; prescription drugs; price controls; simulation


Published Online: 2017-01-20


Citation Information: Forum for Health Economics and Policy. 20160011, ISSN (Online) 1558-9544, ISSN (Print) 2194-6191, DOI: https://doi.org/10.1515/fhep-2016-0011, January 2017

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