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Biosketch:
Mark G. Duggan, Associate Professor, received his Ph.D. from Harvard University
in 1999. He taught at the University of Chicago before joining the Maryland
faculty in 2003. His research is empirically oriented with a focus on
public finance and health economics and related projects in labor economics
and crime. In his current research, he is examining the incidence of Social
Security, Medicare, Medicaid, and other government programs. His publications
include "More Guns, More Crime", Journal of Political Economy,
2001; "Winning Isn't Everything: Corruption in Sumo Wrestling"
American Economic Review, 2002; "The Rise in the Disability Rolls
and the Decline in Unemployment" Quarterly Journal of Economics,
2003; and "Does Contracting Out Increase the Efficiency of Government
Programs? Evidence for Medicaid HMOs" forthcoming in Journal of Public
Economics, 2004.
Abstract:
In 2003 the federal-state Medicaid program provided prescription drug
coverage to more than 50
million people. To determine the price that it will pay for each drug,
Medicaid uses the average
private sector price. When Medicaid is a large part of the demand for
a drug, this creates an
incentive for its maker to increase prices for other health care consumers.
Using drug utilization
and expenditure data for the top 200 drugs in 1997 and in 2002, we investigate
the relationship
between the Medicaid market share (MMS) and the average price of a prescription.
Our
estimates imply that a 10 percentage-point increase in the MMS is associated
with a 7 to 10
percent increase in the average price of a prescription. In addition,
the Medicaid rules increase a
firm’s incentive to introduce new versions of a drug in order to
raise price. We find empirical
evidence that firms producing newer drugs with larger sales to Medicaid
are more likely to
introduce new versions. Taken together, our findings suggest that government
procurement rules
can alter equilibrium price and product proliferation in the private sector.
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