Insurance Design and Pharmaceutical Innovation

Leila Agha, Soomi Kim and Danielle Li

American Economic Review: Insights, 2022, vol. 4, issue 2, 191-208

Abstract: This paper studies how insurance coverage policies impact pharmaceutical innovation. In the United States, most patients obtain prescription drugs through insurance plans administered by Pharmacy Benefit Managers (PBMs). Beginning in 2012, PBMs began refusing to provide coverage for many newly approved drugs when cheaper alternatives were available. We document a shift in pharmaceutical R&D strategies after this policy took effect: therapeutic classes at greater risk of exclusion experienced a relative reduction in investments. This shift reduced development of drug candidates that appear more incremental: that is, those in drug classes with more preexisting therapies and less scientifically novel research.

JEL-codes: G22 I13 L65 O31 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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DOI: 10.1257/aeri.20210063

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