Profiting from Most-Favored Customer Procurement Rules: Evidence from Medicaid

40 Pages Posted: 20 Mar 2020 Last revised: 16 Apr 2021

See all articles by Josh Feng

Josh Feng

University of Utah - David Eccles School of Business; National Bureau of Economic Research

Thomas Hwang

affiliation not provided to SSRN

Luca Maini

UNC Chapel Hill; University of North Carolina (UNC) at Chapel Hill - Cecil G. Sheps Center for Health Services Research

Date Written: February 26, 2020

Abstract

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.

Keywords: Medicaid, Pharmaceutical Market, Bargaining, Most-Favored Customer Clauses, Procurement

JEL Classification: C78, I11, I38, L11, L65

Suggested Citation

Feng, Josh and Hwang, Thomas and Maini, Luca, Profiting from Most-Favored Customer Procurement Rules: Evidence from Medicaid (February 26, 2020). Available at SSRN: https://ssrn.com/abstract=3544987 or http://dx.doi.org/10.2139/ssrn.3544987

Josh Feng

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
2016977982 (Phone)

Thomas Hwang

affiliation not provided to SSRN

Luca Maini (Contact Author)

UNC Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC 27514
United States

University of North Carolina (UNC) at Chapel Hill - Cecil G. Sheps Center for Health Services Research ( email )

725 Airport Road, CB# 7590
Chapel Hill, NC 27599-7590
United States

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