Readers Write: No government solution for runaway drug prices

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Those who argue that government regulations are necessary to protect consumers, the environment and the general public,  claim that corporations are not looking out for the public’s interest and that it is precisely for this reason that regulations are required.  

Price controls, by definition,  are restrictions, usually set in place and enforced by governments, on the prices that can be charged for goods and services in a market.

There are two primary forms of price control, a price ceiling, the maximum price that can be charged, and a price floor, the minimum price that can be charged.

When a price floor is set above the equilibrium price, which is the market price where the quantity of goods supplied is equal to the quantity of goods demanded, instead of letting market forces determine prices, it is the  quantity supplied will exceed quantity demanded, and excess supply or surpluses will result. When government laws regulate prices known as price control. 

STAT, a pharmacy publication issued by Stat news.com.  recently issued a report on prescription drug pricing written by Alfred Engelberg, a philanthropist and retired intellectual property lawyer. He asks the question “Are reasonable restraints on  drug price increases doomed by pharma lobbying?” 

The legislation, known as the “Prescription Drug Pricing Reduction Act,” includes a meaningful solution to the crisis created by runaway drug price increases. This act would, according to Brookings,  lower drug prices, improve the benefit of Medicare’s outpatient prescription drug benefit (Part D) and eliminate myriad impediments to competition, and  put a cap on drug price increases in Medicare Part D by “requiring drug manufacturers to rebate 100% of any price increase that exceeds the rate of inflation.”

It is, as the author writes, “a rare but important display of congressional bipartisanship.” Engelberg writes “Nothing in the Prescription Drug Pricing Reduction Act limits the ability of a pharmaceutical manufacturer to set the initial price of a drug. He says that launch prices are high enough to cover research costs and earn a profit. Nor are price increases related to either a drug’s cost or to a significant increase in research spending” He also writes” “Rather, $200 billion in price increases between 2006 and 2017 simply offsets the loss of a comparable amount of revenue due to generic competition as the monopolies on old medicines expired. In short, price increases are being used to maintain high levels of profit.”

I am not certain how he arrived at this number but Mr. Engelberg is a highly respected intellectual property attorney.

This bill would repeal the extra patent protection and market exclusivity they granted to the pharmaceutical industry that delays the existence of a free market and makes it possible for the industry to profit from price increases rather than from the discovery of new medicines.

Engelberg Writes that “many experts reasonably argue that the U.S.drug prices should be rolled back so they are no higher than the prices being paid in Canada or Europe, or that prescription drugs should be imported from those countries as a way to achieve price parity.

The Grassley/Wyden plan would simply prevent further “predatory price increases without attempting to correct the unfairness of past increases.”  There was a price increase cap which industry did not want in this new bill contending that the price cap is really price control.

Price control will undermine investment in the discovery of new medicines. Adler, Ginsberg and Lieberman writing in “Brookings” on health policy write “while existing evidence is clear that higher rewards to drug development in therapeutic  class tend to result in more new drugs in that class, little is known about the exact nature of that relationship or the social value of the newly developed drugs-and this relationship is likely characterized by diminishing marginal returns to investments in research and development”.

Marc Orlitzky writes “Free Market, is an unregulated system of economic exchange., in which taxes, quality controls, quotas, tariffs, and other forms of centralized economic interventions by the government either do not exist or are minimal”.

Critics of the free market system tend to argue that certain failures require government intervention. First, prices may not fully reflect the costs or benefits of certain goods or services, and second, a free market may tempt competitors to collude which makes antitrust legislation necessary.

In response to these critiques, economists like Milton Friedman have argued for the robustness of markets because they can adjust to or internalize supposed market failure in many situations

In its purest form,  Chris Seabury argues, that free-market economy is when the allocation of resources is determined by supply and demand, without any government intervention. There is a  continuing debate among politicians and economists about how much government is necessary for the US economy. The government is inefficient and creates nothing but a big bureaucracy that increases the costs of doing business for everyone.

Engelberg argues that limiting price increases to inflation is not a form of price control.

It certainly looks that way to me.

I have said in the past that I have definite issues with this new proposal. Some opponents of this bill say they are serious about protecting” free market” capitalism.

They would repeal the extra patent protections and market exclusivity they granted to the pharmaceutical industry. Those protections and exclusivity, they claim,  make it possible for the industry to profit from price increases rather than the discovery of new medicines. 

While I am not an economist, curbing the free market environment is not the American way of doing business.

Bertram Drachtman

Great Neck

1 COMMENT

  1. “While I am not an economist, curbing the free market environment is not the American way of doing business.”

    No, Mr. Drachtman, you certainly are no economist, but you ARE a pharmacist. You could have said so.

    Hopefully, people know enough to see through these arguments.

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