Insurance Design and Pharmaceutical Innovation

This paper studies how insurance coverage policies impact pharmaceutical innovation. In the United States, most patients obtain prescription drugs through plans administered by Pharmacy Benefit Managers (PBMs). Beginning in 2012, PBMs began refusing to provide for many newly approved when cheaper alternatives were available. We document a shift R&D strategies after this policy took effect: therapeutic classes at greater risk of exclusion experienced relative reduction investments. reduced development drug candidates that appear more incremental: is, those with preexisting therapies and less scientifically novel research. (JEL G22, I13, L65, O31)