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  5. Economic Issues in Pharmaceutical and Medical Device Markets
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Economic Issues in Pharmaceutical and Medical Device Markets

Paper Session

Monday, Jan. 5, 2026 1:00 PM - 3:00 PM (EST)

Philadelphia Marriott Downtown, Room 407
Hosted By: Health Economics Research Organization
  • Chair: John Cawley, Cornell University

Provider Altruism and Discarded Anticancer Drugs

Geoffrey Schnorr
,
U.S. Military Academy
Konstantin Kunze
,
University of Rochester

Abstract

We study altruism among health care providers---the extent to which they consider the welfare of others when making treatment decisions---in a setting where choice of treatment quantity affects provider profit and public spending, but not patient health. In our setting, providers choose dosages of anticancer drugs around vial-size cutoffs. These drugs are dosed variably and packaged in large and expensive single-use vials ($1,180 for the average vial in our sample). A typical infusion uses a small number of vials and the excess in the last vial is thrown away. Because Medicare pays for the infused and discarded portion of the vial, costs increase substantially at vial-size cutoffs. Using bunching methods in Medicare claims data, we find that 9% of the 3.8 million claims in our sample have doses manipulated down across these cutoffs. Our results strongly suggest that providers sacrifice profit in order to lower costs for patients and/or Medicare. Treatment guidelines recommend this dose manipulation and state that small dose reductions (e.g., < 10%) are unlikely to affect health outcomes. 46% of claims in these narrow windows have their doses reduced. Using Medicare reimbursement rates, we can quantify that a provider who manipulates down foregoes $0.056 in profit for every $1 of reduced patient and Medicare expenses. This provides a novel revealed preference quantification of provider altruism.

Negative Product Disclosure and Innovation: Evidence from Medical Device Adverse Events

Jennifer Kao
,
University of California-Los Angeles
Colleen Cunningham
,
University of Utah

Abstract

This paper examines how increased transparency about product safety influences firm innovation in health care markets. We study a 2019 regulatory change in the U.S. medical device industry that required manufacturers to disclose millions of previously hidden adverse event reports. The policy changed both what firms knew about competitors and what they expected to reveal about their own products. We find two opposing effects: firms reduce innovation in response to anticipated disclosure costs (withholding), but also shift innovation in response to competitors’ disclosures (learning). Our findings shed light on the costs and opportunities associated with disclosing negative product information and clarify how increased transparency influences firm adaptation, market dynamics, and patient outcomes.

Vertical Integration and Regulated Profits in Pharmacy Benefits Markets

Eric Yde
,
University of Virginia

Abstract

This paper studies the effects of vertical integration between insurers, pharmacy benefit managers (PBMs), and pharmacies on drug prices and insurance premiums. I construct an empirical model of pharmacy pricing, insurer premium setting, and consumer demand for insurance plans and pharmacies in Medicare Part D, a government program that provides subsidized drug insurance to older adults in the United States. I estimate the model using prescription drug claims data, which I combine with novel information on insurer-PBM relationships and pharmacy ownership. In equilibrium, vertically integrated insurers reduce premiums and increase internal prices for prescription fills, shifting profits to their pharmacies. Two institutional features motivate this profit-shifting strategy: consumer cost-sharing, which allows firms to retain profits on integrated prescription fills; and regulatory caps on insurer profits, which incentivize firms to “tunnel” excess profits to pharmacies through higher drug prices. My estimated model predicts that the divestiture of vertically integrated pharmacies would reduce drug prices by 7.3% and increase annual consumer surplus for Medicare enrollees by 8.1%.

Health Care Reform and Firm Dynamics: Evidence from Medicare Part D and the Retail Pharmacy Industry

Brandyn Churchill
,
American University
Georgina Cisneros
,
American University

Abstract

Retail pharmacies fill over 4 billion prescriptions each year and are the most frequent service delivery touchpoint in the U.S. health care system. Despite this important role, relatively little is known about the economic factors driving pharmacy access. We provide new evidence on how Medicare Part D shaped the retail pharmacy industry using 2000-2007 National Establishment Time-Series data and a difference-in-differences identification strategy leveraging variation in the share of the customer base likely comprised of Medicare beneficiaries. We find that Medicare Part D was associated with a 5 percent reduction in the number of pharmacies due to a reduction in the number of pharmacy openings; we do not detect a change in pharmacy closures. Next, we show that this reduction was most pronounced in racial and ethnic minority communities. Finally, we show that existing pharmacies located in previously competitive markets benefitted from reduced market entry.

Discussant(s)
Ljubica Ristovska
,
tbd
Lucy Xiaolu Wang
,
University of Massachusetts-Amherst
Rena Conti
,
Boston University
Kelsey Moran
,
Massachusetts Institute of Technology
JEL Classifications
  • I1 - Health