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What government action can be taken to reduce the price of prescription drugs in the US?

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Currently, the pricing of prescription drugs has gone out of control. The New York Times explains that “there is ample evidence that drug prices have been pushed to astronomical heights for no reason other than the desire of drug makers to maximize profits”. Moreover, an NPR health poll found that high costs are responsible for medical non-adherence, which is when people do not properly follow their prescription, 67% of the time (Bresnick). Clearly, the lack of a governmental response to the rising costs of prescription drugs is a problem that must be solved.

What you need to know:

The most important thing to understanding why drugs in the United States are so expensive is to understand the system that allows for the near monopolization of health treatments.

Essentially, once a pharamceutical company develops a new drugs, it is “patented, protecting them from competition and allowing them to charge high prices” (Moir). On the surface, this seems like a good thing. Patents encourage innovation by allowing people to profit off of the product they develop.

Unfortunately, in the case of prescription drugs, it is this precise system that allows companies to arbitrarily raise prices for no other reason than profit. But, when “the patent ends, other companies are allowed to supply the previously patented drug”(Moir). Once this competition occurs “it has been suggested that for widely used drugs price falls can be as much as 95%” (Moir).

However, current loopholes allow companies to essentially extend their patent indefinitely (Moir). Thats why, despite that fact that insulin was discovered in the 1920’s, there are only three major manufacturers of insulin and prices for the drug remain high (Belluz). This strategy of extending patents to prevent competition is applied to many drugs which has allowed for the overpricing of many important drugs.

My “for now” response:

To find “my response” I tackled the issue using the theme of my class: Game Theory. I created a model that looks at what government action could be taken to lower the costs of precription drugs, and in turn how pharmaceutical companies would respond. Specifically, I looked at two things the government could do. The first was impose a price control that prevents companies from selling drugs above a certain price. This type of system exists in some European countries. The other response I considered was loosening intellectual property laws that would shorten patent lengths and close loopholes.

On the other hand, I looked at the responses of pharmaceutical companies as well. Many people in the US are concerned that decreased pharmaceutical profits would result in cuts to research and development budget among pharmaceutical companies. So the first response I looked at was precisely that. The second response was budgets cuts from other areas like marketing and keeping current research and development budgets the same. Then I assigned payoffs to both the government and pharmaceutical companies. The result is this matrix:

 

 

The Government

Pharmaceutical Companies

 

A

B

A

1, -2

.5, -1.5

B

3,-3

2,-1

This matrix indicates that in order to derive the most benefits for themselves, the government should loosen intellectual property laws, and the pharmaceutical companies should not cut research and developement.

I think this response is a good solution for several reasons. First, it continues the incentive for pharmaceutical companies to innovate, because they still can benefit massively from developing a new drug, just for a shorter period of time. At the same time, in the long term it allows for competitors to eventually also sell a similar drugs which would lower prices. The other reason I view this as an good solution is that it seems plausible. Though this was not a factor I analyzed, loosening intellectual property laws seems like it would recieve way less pushback in congress as opposed to a more extreme option like imposing price controls.

What you can do:

On the off chance that you are a lawmaker, you could introduce legislation that tackles the problem of overpriced prescription drugs such as the plan suggested above.

That being said, most people are not lawmakers. But, that does not mean that there is not anything those people can do. VOTE. The easiest way to help create any type of change is to vote for politicians that support that change. This is no different for addressing overpriced prescription drugs. 

Secondly, I would encourage you to read further into the topic. That could be reading the sources I have cited on this page, or your own research. By staying informed on the issue, hopefully you can help other people learn about the problem as well.

Lastly, discourse is important in creating the best possible solution. So, in the comments below, please share any ideas on better ways that you think the government could reduce prescription drugs prices.

 

Works Cited and Consulted

Belluz, Julia. “The Absurdly High Cost of Insulin, Explained.” Vox, Vox, 7 Nov. 2019, www.vox.com/2019/4/3/18293950/why-is-insulin-so-expensive.

Bresnick, Jennifer. “Cost Is a Primary Driver of Medication Non-Adherence Rates.” HealthITAnalytics, HealthITAnalytics, 11 Sept. 2017, healthitanalytics.com/news/cost-is-a-primary-driver-of-medication-non-adherence-rates.

Moir, Hazel, and Deborah Gleeson. “Explainer: Evergreening and How Big Pharma Keeps Drug Prices High.” The Conversation, 10 Dec. 2019, theconversation.com/explainer-evergreening-and-how-big-pharma-keeps-drug-prices-high-33623.

“No Justification for High Drug Prices.” The New York Times, The New York Times, 19 Dec. 2015, www.nytimes.com/2015/12/20/opinion/sunday/no-justification-for-high-drug-prices.html.

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COMMENTS: 2
  1. April 25, 2020 by Angela

    Great presentation, Grant! I agree that the absurdly high costs for prescription drugs need to be addressed, and I think it’s a problem that can be solved by implementing measures like price control and closing loopholes in patent laws as you mentioned. The price ceiling really needs to be set so capitalistic greed doesn’t abuse the inelastic demand curve of life-saving drugs!

  2. April 27, 2020 by Harish

    Hi Grant, I think you your game theory prespective is unique by incorporating what you know and have learnt from the news. I especially like the way to described the actions that each player can take. They make sense to me. I wonder how the pareto optimality strategy would change the outcome of the game.

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