Mark Gritter (markgritter) wrote,
Mark Gritter


If we are going to have price controls on out-of-patent prescription drugs, this seems like just about the worst way to do it: The proposal is to have a committee evaluate whether price increases have been "reasonable" and, if not, impose fines or rebates.

The theory, perhaps, is that fear of government action will cause drug manufacturers to play it safe. However, by the time the hypothetical committee makes its findings, a significant amount of damage will probably already have been done. The whole thing seems sort of arbitrary in that the decision is after-the-fact and literally punishes success in pricing (not that this is necessarily a socially useful form of success.)

We have a model for this: electricity pricing. The power company goes to a local authority and proposes a rate, and gets a yea or nay for the next year or so. An out-of-patent drug fits this model pretty well--- there are no R&D costs here, just capital costs of maintaining the ability to produce it. It removes the uncertainty about what you're actually allow to charge, and prevents patients and insurance companies from bearing the costs up-front.
Tags: economics
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