Current Events Pharmaceuticals

Manhattan Institute

The Manhattan Institute’s Center for Medical Progress has some interesting articles on health care policy.  The Center “…is dedicated to articulating the importance of medical progress and the connection between free-market institutions…”

One paper of note is by Vernon, Santerre and Giaccotto (“Are Drug Price Controls good for your Health“).  The authors examine the Medicare Prescription Drug, Improvement and Modernization Act (MMA) of 2003 and the possibility that the bill could be extended to allow Medicare to negotiate price decrease directly with the pharmaceutical firms.  The authors astutely observe that federal government negotiation with pharmaceutical firms will create a near monopsony.  This will reduce price charged to consumers initially, but at the cost of a reduction in new drug innovation in the future.  To quote from the executive summary:

“…the MMA will dramatically reduce both real drug prices and R&D spending. We estimate that real drug prices will decline by 67.5 percent (or about 49 percent lower than pre-MMA levels) if purchases under the MMA are treated in the same manner as drug purchases under Medicaid and the VA have been treated historically. We further estimate that this decline will reduce R&D spending by 39.4 percent, or $372 billion over the lifetime of the act. This translates into a reduction of 277 million life years. “

Price controls may save money in the short run, but at significant cost in the long run.