How to bring down high drug prices

In this Friday, Feb. 15, 2019 photo, boxes of Tramal, an addictive pain killer, are stacked on the table of a pharmacy in Gaza City. (AP Photo/Adel Hana)

In this Friday, Feb. 15, 2019 photo, boxes of Tramal, an addictive pain killer, are stacked on the table of a pharmacy in Gaza City. (AP Photo/Adel Hana)

The rising cost of prescription drugs is putting a serious squeeze on middle- and lower-class families. If you aren’t familiar with the problem, then the numbers may surprise you. Imagine having to pay $600 for an Epi-pen, a life-saving device for those who suffer from severe allergic reactions. With costs that high, people who are uninsured or underinsured will be forced to make difficult decisions in order to pay for their prescriptions. Clearly, this is an issue that we can’t let fall to the wayside, and fortunately, many policymakers have expressed interest in bringing prices down. However, the methods they use to achieve this goal matter immensely. If lawmakers follow the popular trend and enact price controls or provide more government insurance, they will fix nothing and make the problem worse. Only solutions that embrace the free market will be effective.

To understand why price controls won’t lower prices, it’s important to understand why drug prices are high in the first place. First, it is very expensive to produce drugs. Many seem to forget that making any new medication requires an enormous investment in research and development. Once the pharmaceutical company has produced a verifiably effective medication and has it approved by regulators, it only has a few years to sell the drug before its patent expires and competitors can produce the drug at a very low cost. Thus, the price of any prescription will reflect the high costs the pharmaceutical company had to spend in order to produce the drug as well as the limited time the firm has to make back its investment. Therefore, it shouldn’t come as a surprise that medications can be expensive. This might not seem like a great outcome for someone who needs an expensive prescription, but things get much worse if prices are kept artificially low by price controls.

If a company can’t sell its product for more than it costs to produce it, then the firm won’t produce the product at all. This isn’t just theory: A study by the Department of Commerce showed that in countries with price controls on drugs, pharmaceutical R&D was reduced by $5 to $8 billion a year. A similar study by the Brookings Institution and American Enterprise Institute found that had price controls been in place between 1980 and 2000, 198 of the 520 medications approved during that time would never have been made at all. In other words, price controls could quite literally cost us the cure for cancer.

The other major reason for high drug prices is the dominant role third parties provide in financing health care in the United States. Third parties, in this case health insurance providers and government healthcare programs, have a lot more money than the average consumer. So, when they are paying for prescriptions on behalf of the consumer, pharmaceutical companies can charge a much higher price. The result of this arrangement is two-fold. For those who have insurance, premiums will continue to rise and take up more and more of their monthly income while government health programs will continue to become more expensive. Second, if you don’t have insurance or qualify for government assistance, life-saving medications will become too expensive for afford. In other words, more public and private health insurance is exactly the wrong cure for high cost prescription drugs because they’re a primary reason for the problem in the first place.

So, what is the solution? First, let me reiterate that even in the best of circumstances many prescription drugs will be expensive because they are inherently expensive to develop. That being said, the prices we see right now are still absurdly high even if we account for the inherent costs of producing them. Luckily, there are solutions to this problem. A good place to start reform would be revisiting the FDA drug approval process. Many pharmaceutical companies use the burdensome regulatory system to their advantage so that it takes longer for competing generics to reach the market, which means less competition and higher prices. However, the number one area of reform should be decreasing the role third parties play in our health care system – it is by far the key cause of absurdly expensive medications. This can be accomplished in a number of ways, such as changing the tax code so that it favors individual insurance over employer provided coverage, and by putting in place a system that discourages comprehensive policies that pay for all medical expenses instead of just unexpected and severe emergencies. The latter suggestion would result in consumers buying most prescriptions and other medical services directly from pharmacists and doctors, which would force them to lower prices so that their customers can afford them. Tax-free health savings accounts, or HSAs, could be created so that each person can allocate money towards their healthcare and monitor their expenses.

The solutions I’ve laid out all have a high chance of working because they embrace the free market, which encourages the efficient allocation of goods and generally leads to reasonable prices enough suppliers are willing to sell at and most consumers are able to afford. Unfortunately, most of our politicians are ignorant of these proposals. President Donald Trump has expressed interest in imposing price controls, and a number of prominent Democrats support “Medicare-for-All”, a massive government insurance program that would provide coverage for all Americans. Yet, as we’ve seen, these solutions will do nothing to cut drug prices and will actually make the problem much worse. As we move forward, it is critical that voters educate themselves on healthcare policy and elect leaders that support effective solutions to these problems. Otherwise, we’ll be quite literally paying the price of bad healthcare policy for a long time.


Jacob Marie is a contributor for The Daily Campus. He can be reached via email at jacob.marie@uconn.edu.