Today, the Senate Finance Committee holds hearings to markup its ambitious drug pricing overhaul package. This represents perhaps the clearest and more comprehensive drug pricing legislative package to date. Rather than detailing each provision of the package, which is likely to meaningfully change throughout the legislative process, it’s useful to take a step back and consider a framework for evaluating the economic fundamentals driving drug pricing policy.
Experts like to say drug pricing is complicated. In reality it’s not – the “secret” of drug pricing boils down to a simple question of which drugs society wants to say “no” to. There are no free lunches here. Depite the empty promises of both sides, Americans cannot have lower prices, access to all of the drugs that exist today, and the same rate of innovative investments in new prodcuts. We must make some grown up choices. The existing U.S. system refuses to truly say no to any pharmaceutical product regardless of its price. When insurers attempt to implement utilization management for expensive drugs, we castigate them with headlines about greedy executives and evil firms. By handcuffing insurers in this way, we guarantee high prices. On a more positive note, the profits generated by these high prices attract large amounts of investment in new drugs. Effectively, we currently prioritize the development of future drugs over universal access to existing drugs today. Our current system is one end of a continuum. We could also imagine a U.S drug market where we truly demanded lower priced drugs, perhaps via regulation. For existing drugs, manufacturers would ultimately cave to strong regulations (i.e. a take it or leave it offer for the entire U.S. market). After all, nearly any proposed price would be well below the marginal cost of production and therefore selling an existing drug, even at that lower price, would be the profit maximizing decision. Of course, such regulated prices would depress the likely returns for investments in developing new products which the weight of existing evidence shows will result in fewer products in the future. The magnitude of this decline depends on the amount profits decrease. More limited interventions in the market should limit the impact on investments in research and development but of course also have a small effect on prices and access. It quickly becomes clear that pharmaceutical pricing policy boils down to determining the optimal type of government intervention in the market. Ideally, we would be able to use an unfettered market to govern pharmaceutical purchases. After all, free markets have been the central organizing force across economies for generations because of their remarkable ability to aggregate the multitude of consumer preferences. The more diverse and complicated the set of preferences, the greater the role for markets because aggregating these preferences becomes an almost impossible task for a single central authority.
0 Comments
Leave a Reply. |
Author & Personal InterestJohn Anderson Smith joined us on 3 June 2019. He comes to us from an News agency company & He also has the skills of Computing, Communication with other and another thing. He also look forward to see what is happening around our worlds. John Anderson Smith are proud to help our customer with anything he also happy for other Issues such as Education and etc. Archives
October 2019
Categories
All
|