Big Pharma’s Go-To Defense of Soaring Drug Prices Doesn’t Add Up
Many pharmaceutical companies claim that exorbitant drug costs—some companies charge patients $100,000, $200,000, or even $500,000 a year—are necessary to fund expensive research projects that generate new drugs.
But “invoking high research costs to justify high drug prices,” Ezekiel J. Emanuel wrote last week, “is deceptive.” As even some pharmaceutical executives have acknowledged, he said, “there is no necessary link between a decline in drug prices and a decline in R&D.”
Too many people are focused on driving health costs down. It sounds intuitive, but it misses a bigger opportunity: making health costs most effective. This article is another example of this: Drug prices are significantly higher than raw production costs. We already know this will always be the case, so the only question is how much more should they be. And the author never answers that question. In fact, you’ll find there is no principled answer to that question, because lower profits will surely lead to lower research, though the exact relationship is unknown. Before you think this is just another “let the market run amok” reply, let me suggest a much more interesting proposal: Instead of trying to cap profits by pharmaceutical companies, tax the profits and reinvest them in public research. Today, no direct mechanism exists for that in the United States. If the author is right that research isn’t as expensive and costs are predictable, then we’ll see public research producing the next generation of drugs. This would allow generics to manufacture the next-generation drugs, truly reducing costs.