America Has a Drug (Price) Problem

By Luis Bravo

Luis Bravo is a freshman at the University of Pennsylvania.
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Turing Pharmaceuticals was the subject of heavy backlash after CEO Martin Shkreli increased the price of Daraprim astronomically. This drug is used to fight common parasites that attack people with weakened immune systems, such as AIDS and cancer patients. In a drastic move, the price was increased by nearly 5,000%, pricing each pill at $750 instead of its previous $13.50. [1] Though this incident has received a significant amount of coverage from various media outlets, drastic hikes in the price of prescriptions are common-- and completely legal-- decisions by pharmaceutical companies to increase revenue from specialty medication. In fact, the change in the price of Daraprim is modest in comparison to the 2014 change of the prescription pill Tertracycline, which increased in price by a whopping 17,714%. [2] With Americans facing exceptionally large prescription costs in comparison to other developed nations, it is imperative that the federal government adopts an active approach in reducing the costs of medication.

In comparison to our European counterparts, Americans pay more than double for prescription medications. [3] Though there are various factors that influence the cost of drugs, including differences in the organizational structure of our respective medical systems, pharmaceutical price regulation measures are the primary reason the European Union is able to maintain low prescription costs. The E.U. heavily intervenes in their pharmaceutical market by instating price caps for the sale of generic drugs and setting a maximum reimbursement rate. [4] This is a significant divergence from the United States, whose only policies regarding the pharmaceutical industry focus on safety. Most Americans, regardless of political affiliation, are frustrated by rising prescription costs and favor the passage of policies allowing the government to further control drug costs. [5]

Prescription price regulation measures in America, however, are a simple fix to a much more complex problem. According to a study conducted by the RAND Corporation, the implementation of drug price controls similar to those in the European Union would prove to have detrimental effects throughout generations. Though such measures would save both the government and individuals a considerable amount of money reducing overall spending on drugs and medical care, they would inevitably result in negative trade-offs. Primarily, the life expectancy of the American population would be reduced over the course of the years. By 2060, life expectancy would drop by .7 years and continue to fall indefinitely. [6] Moreover, drug price regulations would stifle innovation of new treatments and medication. Pharmaceutical companies would lose incentives, negatively impacting the overall intensity of research and as a result, deterring the production of smaller innovations. An independent study from the University of Rosario in Argentina found that stringent regulations in the price of prescriptions lead to a decline in overall health of populations and a hampering in research and design of new medications. [7]

If prescription price regulation is not the answer, then what is? Much of the solution lies in revamping the manner in which new medications are developed. In order to spur development of heavily under-researched medication, the US Food and Drug Administration grants exclusive patents to pharmaceuticals, allowing them complete control to market the drug after its development. [8] A step in the right direction would be to cede this form of patent-supported research and instead redirect efforts by significantly increasing funding to the National Institute of Health and non-profits like Universities. Additionally, because pharmaceuticals are currently granted exclusive patents that allow them to monopolize medications, competition amongst different pharmaceuticals is critically low. In response, Congress should spur innovation through the passage of policies that encourage competition amongst pharmaceuticals. Another approach that could be adopted to encourage drug research, and consequently reduce the price of prescriptions, is to pass policies requiring drug companies to reinvest a percentage of revenues in research and development. This is similar to the Affordable Care Act’s medical loss ratio, which requires insurance companies to utilize the majority of the money from premiums in medical expenses or reimburse consumers. By 2012, this policy had already saved consumers $2.1 billion. [9]

Though many countries in the E.U. have adopted prescription price regulations, similar regulations in the United States would prove to be ineffective and damaging. Though the short-term impact of regulations would be minimal, over the course of multiple generations, life expectancy would dwindle as a result of reduced innovation. Instead, we must search for alternative ways to control the prices of medication like getting rid of exclusive marketing patents, funding non-profit institutions, and requiring pharmaceuticals to reinvest profits to research and development. Without a doubt, controlling the prices of prescriptions will have to be a multifaceted approach. By learning from the mistakes of other health care systems and adopting modern solutions, we can find a fair compromise in the prices of prescriptions without sacrificing innovation.


[1] Rushton, Christine. "Company Hikes Price 5,000% for Drug That Fights Complication of AIDS, Cancer." USA Today. September 18, 2015. Accessed October 15, 2015. http://www.usatoday.com/story/news/health/2015/09/18/company-hikes-price-5000-drug-fights-complication-aids-cancer-daraprim/32563749/
[2] Hirst, Ellen. "Generic Drug Prices Skyrocket in past Year." Chicago Tribune. November 21, 2014. Accessed October 15, 2015. http://www.chicagotribune.com/business/ct-rising-generic-drug-prices-1102-biz-20141121-story.html
[3] Lutz, Ashley. "See How Much More Americans Pay For Prescription Drugs." Business Insider. August 29, 2012. Accessed October 15, 2015. http://www.businessinsider.com/see-how-much-more-americans-pay-for-prescription-drugs-2012-8
[4] Puig-Junoy, Jaume. "Impact of European Pharmaceutical Price Regulation on Generic Price Competition." PharmacoEconomics, 2010, 649-63. Accessed October 15, 2015. http://www.ncbi.nlm.nih.gov/pubmed/20515079
[5] Alonso-Zaldivar, Ricardo. "Poll: Majority in US Wants Gov't to Curb Prescription Costs." The Huffington Post. August 20, 2015. Accessed October 15, 2015. http://www.huffingtonpost.com/huff-wires/20150820/us-drug-costs-poll/
[6] "Regulating Drug Prices: U.S. Policy Alternatives in a Global Context." Research Highlights. Accessed October 15, 2015. http://www.rand.org/pubs/research_briefs/RB9412/index1.html
[7] Bardey, D., A. Bommier, and B. Jullien. "Retail Price Regulation and Innovation: Reference Pricing in the Pharmaceutical Industry." Journal of Health Economics, 2010, 303-16. Accessed October 15, 2015. http://www.ncbi.nlm.nih.gov/pubmed/20053474
[8] Baker, Dean. "End Patent Monopolies on Drugs." The New York Times. September 23, 2015. Accessed October 15, 2015. http://www.nytimes.com/roomfordebate/2015/09/23/should-the-government-impose-drug-price-controls/end-patent-monopolies-on-drugs
[9] Tanden, Neera, and Maura Calvin. "Encourage Drug Research Over Profiteering." The New York Times. September 23, 2015. Accessed October 15, 2015. http://www.nytimes.com/roomfordebate/2015/09/23/should-the-government-impose-drug-price-controls/encourage-drug-research-over-profiteering-29

Photo Credit: Flickr User Konstantin Lazorkin

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