NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Role of Government Reimbursement in Drug Shortages

Ali Yurukoglu, Eli Liebman, David B. Ridley

NBER Working Paper No. 17987
Issued in April 2012
NBER Program(s):   HC   HE   IO

Beginning in the mid-2000s, the incidence of drug shortages rose, especially for generic injectable drugs such as anesthetics and chemotherapy treatments. We examine whether reimbursement changes contributed to the shortages, focusing on a reduction in Medicare Part B reimbursement to providers for drugs. We hypothesize that lower reimbursement put downward pressure on manufacturers’ prices which reduced manufacturers’ incentives to invest in capacity, reliability, and new launches. We show that, after the policy change, shortages rose more for drugs with (i) higher shares of patients insured by Medicare, (ii) greater decreases in provider reimbursement, and (iii) greater decreases in manufacturer prices.

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This paper was revised on February 12, 2016

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Document Object Identifier (DOI): 10.3386/w17987

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