Patents, innovation, and the welfare effects of Medicare Part D.
OBJECTIVE
To evaluate the efficiency consequences of the Medicare Part D program.


METHODS
We develop and empirically calibrate a simple theoretical model to examine the static and the dynamic welfare effects of Medicare Part D.


RESULTS
We show that Medicare Part D can simultaneously reduce static deadweight loss from monopoly pricing of drugs and improve incentives for innovation. We estimate that even after excluding the insurance value of the program, the welfare gain of Medicare Part D roughly equals its social costs. The program generates $5.11 billion of annual static deadweight loss reduction and at least $3.0 billion of annual value from extra innovation.


CONCLUSIONS
Medicare Part D and other public prescription drug programs can be welfare-improving, even for risk-neutral and purely self-interested consumers. Furthermore, negotiation for lower branded drug prices may further increase the social return to the program.


CONCLUSIONS
This study demonstrates that pure efficiency motives, which do not even surface in the policy debate over Medicare Part D, can nearly justify the program on their own merits.
Gailey
Adam
A
RAND Corporation, Santa Monica, CA, USA.
Lakdawalla
Darius
D
Sood
Neeraj
N
D004465:Economic Competition; D054524:Medicare Part D / Q000191:economics; D017059:Models, Econometric; D010330:Patents as Topic; D004364:Pharmaceutical Preparations / Q000191:economics*; D012106:Research; D012946:Social Welfare; D014481:United States
D004364:Pharmaceutical Preparations