Patrick Phillips
11/30/18
Week Fourteen Research
The real debate regarding the price of prescription drugs is one about accessibility versus new drug research. While a low price would obviously be advantageous to consumers now, it would provide lower incentives for new research into the creation of new drugs in the future. Thus because the industry is not as profitable, potential entrepreneurs/investors might choose to put their efforts and capital towards something other than new drugs.
The industry of prescription drugs is heavily regulated. Some of these regulations are to favor pharmaceutical companies. A cynical observer would say that regulations like this are only instituted because of corruption and lobbyists trying to maximize profits in the pharma industry. However, again,
rewarding pharma companies with a 20-year monopoly over a drug from the time a new drug is invented. This is clearly incentivizing new drug research, right? Then there are also proposed ideas to regulate drug prices to keep them affordable for consumers. These would clearly help the entire system, right? Let's look at the research...
The corpus of economics research seems to suggest that drug price regulation to keep drug prices down would in fact hurt new drug innovation. In 8.5/10 studies, by Scott Alexander's analysis, this conclusion was found. Regulatory approaches in most cases reduce pharmaceutical revenues, which in the short term generate consumer savings, but risk decreased innovation and reductions to life expectancy, which Alexander estimates could be as much as 1 billion lifespan years for a single generation (through a very-hand wavy, probably fallacious calculation).
Part ii of the article goes into discussing generic drugs, and their relative affordability combined with comparable often equal effectiveness when compared to brand name drugs. Scott Alexander claims that doctors not prescribing generic drugs, and the incestuous relations between doctors and pharma is harmful. Now here is the quote that we are to pay particular attention to:
"So one of the best ways to deal with expensive brand-name drugs is to stop using expensive brand name drugs for no reason. Since I get to define what left-libertarianism means however I want, I will say that it is provisionally okay with banning pharmaceutical companies from buying doctors lunch, as long as there aren't any studies concluding that this would kill more people than Communist China. There are probably lots of other ways to improve medical education and medical economics so that doctors are less easily bamboozled into prescribing these, but those can wait for other blog posts."
Now someone could conclude a ban like the one he proposes could end up killing more people than Communist China if they took this type of analysis: The whole debate here is that pharma needs to get big revenues to be encouraged enough to push through FDA regulations and continue large scale research into new drugs. If doctors stopped prescribing new brand name drugs then they would be less
i. HOWEVER, the problem is not that doctors are over prescribing new brand name drugs. It is