There is a new paper on this topic:
We investigate the effects of major Medicare price cuts on the medical device industry, which have reached a 61% drop over 10 years for certain types of devices. Analyzing over 20 years of administrative and patent data, we find that these price reductions have led to a 25% decrease in new product launches and a 75% decrease in patent filings, indicating a significant reduction in innovation activity. Manufacturers have reduced market penetration and increased exports to foreign manufacturers, which are associated with high levels of product defects. Our calculations suggest that the amount of lost inno-vation may completely offset the cost savings from price reductions. We suggest that better targeted price changes can reduce these negative effects. These findings emphasize the need to balance cost savings and incentives for innovation and quality in policy formulation.
Written by Yunan Ji and Parker Rogers. Here’s the tweet storm in a nutshell. By Sam Hammond.
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