PHE Team Author New Study on Medicare Part D Price Controls

In "The Long-Term Impact of Price Controls in Medicare Part D," a new scientific paper recently published in Forum for Health Economics and Policy, PHE authors Gigi Moreno, Emma van Eijdnhoven, Jennifer Benner and Jeffrey Sullivan examine the potential impact over time of government price settings for prescription drugs.

Focusing on Medicare Part D, Medicare's outpatient prescription drug program, the PHE team applied the Health Economics Medical Innovation Simulation (a micro-simulation of older Americans) to estimate the long-term impacts of price controls, using pricing in the Federal Veterans Health Administration as a proxy.

Overall, PHE's researchers concluded that imposing VA-style pricing in Medicare Part D would generate net social costs due to reduced life expectancy of Medicare beneficiaries, shrinking of the drug development pipeline, and resulting losses in consumer welfare worth trillions of dollars. Specifically, the authors found that the policy would reduce the number of new drug introductions by as much as 25 percent. As a result, life expectancy for future Medicare beneficiaries, the cohort born between 1991 and 1995, would also be reduced by almost two years relative to the status quo. Overall, the authors concluded that price controls would reduce lifetime welfare – defined in the study as the societal impacts of fewer, less effective treatments leading to higher comorbidity burdens and less effective treatments, leading to shorter lifespans overall – by $5.7 to 13.3 trillion dollars (US$2015) for the U.S. population born between 1949 and 2005.

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