Do Insurance Policies Increase Incentives to Innovate? A Look at Medicare Part D's Effect on Drug Patenting Activity

This paper reexamines how a shift in demand for pharmaceutical treatments affects innovation as measured by new patent filings. Using U.S. Patent & Trademark Office data on pharmaceutical patenting between 1998-2019 for 40 drug therapeutic classes, I show that the announcement of expanded drug coverage through Medicare Part D in 2003 led to a significant differential short-term increase in patenting for drug classes targeted to older people covered by Medicare, but with no impact on longer-term patenting activity. Consistent with Finkelstein (2004), financial incentives appear to increase patenting activity for “off the shelf” drugs under development