Using a difference-in-difference approach, we find that an increase to Medicaid's minimum drug rebate under the Affordable Care Act in 2010 lowered non-Medicaid drug spending by 2.5 percent. A stylized bargaining model shows that this is likely driven by the interaction of this reform with Medicaid's "most-favored customer" clause (MFCC). By examining the response of drugs that faced a change in incentives equivalent to the removal of Medicaid's MFCC, we estimate that removing the Medicaid MFCC would have reduced overall 2010 non-Medicaid drug spending by an additional 3.5 percent, though it would have likely also increased Medicaid spending.
Feng, Josh, Thomas Hwang, and Luca Maini.
"Profiting from Most-Favored-Customer Procurement Rules: Evidence from Medicaid."
American Economic Journal: Economic Policy,
Bargaining Theory; Matching Theory
National Government Expenditures and Health
Health: Government Policy; Regulation; Public Health
Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
Chemicals; Plastics; Rubber; Drugs; Biotechnology