ECON2350: Health Care Policy, Section 02 (10:10 AM) Case Study 1, Word Count: 499
Should the US Regulate Prescription Drug Prices?
Recently, the United States has experienced an increase in the prices of prescription
drugs. Lomustine, a drug for cancer, increased from $50/capsule to $768/ capsule, just in the last
6 years. High drug prices are a financial burden on patients, especially chronically ill patients.
with reports of individuals skipping medications due to cost. The US, stands out as the only
developed country that does not limit pharmaceutical prices, although drug utilization levels are
similar across high-income countries. The question then becomes: Should the US also regulate
prices? On the one hand, opponents of price regulation argue that innovation costs money and
prices reflect this fact. Pharmaceutical companies face high production costs: high entry costs,
high R&D costs, and a small patient population. Regulating the price of drugs would decrease
pharma profits and their ability to innovate, producing immediate savings to consumers today,
but high costs for future generations. A study found that increasing price controls in the US could lead to a 20% reduction in pharma revenues, which would reduce future life expectancy.
Opponents of regulation argue that protective insurance benefits, like reduced cost sharing for
prescription drugs, would not affect pharma profits, and could be beneficial to current and future
generations. Notably, this policy does not account for the large uninsured population in the US
that would not have access to these benefits. Additionally, expanding government insurance
benefits would burden the American taxpayer.
On the other hand, proponents of price regulation argue that it is not entirely clear that
regulation would harm innovation. Pharma companies are notorious for their marketing
strategies. Proponents of regulation argue that high drug prices cover marketing costs rather than
R&D costs. Indeed, around 30% of pharma sales profits are spent on marketing and only 14% on R&D. Price controls would not compromise funding in R&D. Additionally, the industry is
saturated with 'me-too' drugs that are minor variants of branded drugs, cheaper to develop, and
sold at the same high price. Me-too' drugs are not evaluated for their effectiveness and patients
bear these high prices with no evidence of better health outcomes. Regulation would directly
limit the high prices of 'me-too' drugs. Finally, a regulatory approach would protect all
consumers financially, as opposed to the insurance approach, which is limited to individuals
covered by government insurance.
Ultimately, prescription drug costs are exceptionally high in the US and pricing reforms are needed to protect consumers and allow low-income patients access to life-saving drugs. Prices need to be regulated, especially for 'me-too' drugs. Investing in cost-effectiveness
research and comparative effectiveness research between old and new drugs to set price ceilings
and increase price competition would control 'me-too' drug prices. To protect future generations,
price reforms should be paired with a policy that lowers the price consumers face without cutting too much into the price producers receive. Such a policy would be expanding public insurance
benefits to