Lagged-price reimbursement contracts: The impact of medicare Part B on pharmaceutical price growth.

We examine lagged-price cost-plus reimbursement contracts, focusing on Medicare Part B's payment for physician-administered drugs. While previous research has shown that Part B increased launch prices, we estimate its effect on later prices and find that lagged-price reimbursement lowers prices in later periods. Drugs more exposed to Medicare reimbursement have lower price growth (net of rebates): a drug with above median Part B exposure has a 10% lower price after 3 years than a below median exposure drug that launched at the same price. The effect is larger for newly approved molecules, which face less competition.