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Drug Prices and Health Spending

By February 27, 2024Commentary

A recent news story highlights how expensive many drugs have become.  The average ist price, $300,000,  for the 47 new drugs introduced in 2023 was 35% higher than those for new drugs in 2022.  Several gene therapies had prices over $2 million.  Most of these really expensive drugs had small populations, so total spending is relatively small, but a number of the other drugs on the list are for cancer and have larger populations and a greater impact on total spending.  Drug companies give a lot of explanations for why their drugs are so expensive, but basically they just try to charge whatever they can get away with.  Efforts to address the problem are stymied by extremely high campaign contributions and intensive lobbying, and all the profits from high drug prices support those activities.   (Reuters Article)

I will once more give the real explanation why drugs are so expensive in the US and what should be done about it.  We have a patent system that gives new compounds a monopoly for an extended time.  Unless there are other therapeutic alternatives with at least equal efficacy, and because of heavy advertising and marketing spend, doctors tend to use these new drugs.  If you don’t have competition, you can pretty much charge whatever you want for your product.  For many years I have suggested the remedy, which we are finally seeing some policymakers beginning to adopt.  The granting of a patent or the patent life should be dependent on pricing.  If the initial price is too high, or if annual increases are more than the rate of inflation (and really, they should be lower due to scale effects) then the patent goes away or the number of remaining years is decreased.  That is the strongest stick to keep prices reasonable and is directly related to what causes high prices.  Other measures that should be taken include a ban on consumer advertising, a ban on in-person marketing and advertising to physicians and universal use of a product description, one for consumers and one for prescribers.  That would lower drug manufacturers costs as well.  None of this will happen any time soon, so people can keep whining about high drug costs.

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