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11/29/2004: Distortionary Effects of Government Procurement: Medicaid Prescription Drug Purchases (National Bureau of Economic Research [NBER])
Abstract. Excerpt: The federal-state Medicaid program insures 43 million people for virtually all of the prescription drugs approved by the FDA. To determine the price that it will pay for a drug treatment, the government uses the average price in the private sector for that same drug. Assuming that Medicaid recipients are unresponsive to price because of the program's zero co-pay, this rule will increase prices for non-Medicaid consumers.
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