A paper by Haque et al. (2022) inJAMA Internal Medicine looks at the price paid for drugs with indicated uses in both medical (i.e., human) and veterinary (i.e., animal) practice. The authors examined 200 human medications with the most prescription fills as identified in the ClinCalc database, who also had the same active ingredient in treatments for pets. This lead to a list of 120 mostly generic medications. Prices for human drugs came from GoodRx (average retail price [ARP]) and Costco (discounted price); prices for pet formulations came from online pet pharmacies such as Chewy.com. Using this approach, the authors found that:
The median (IQR) human ARP-to-pet price ratio was 5.5 (2.9-10.7), and the human discounted price-to-pet price ratio was 1.4 (0.7-2.5). The human ARP-to-pet price ratio was more than 10 for 35 (29.1%) medications. The human discounted price-to-pet price ratio was more than 3 for 20 (16.7%) medications
Should we be worried about pet drug prices being less than human prices? A commentary by Ward and Chernew 2022 argues perhaps not.
The authors raise the important issue of price discrimination in the prescription drug market, meaning that consumers are charged different prices for essentially the same product. Many readers may infer that the existence of price discrimination for prescription drugs implies that policy actions should be taken to lower the price of human formulations. However, while there are many reasons why we may want to reduce drug prices, a focus on price discrimination may distract from the core policy trade-offs.
From an economics perspective, the problem with price discrimination is not that it reduces economic efficiency…
The problem with price discrimination is that it transfers a greater share of the monetized “value” of the (human) medications to the manufacturers and away from patients (who face increased out-of-pocket spending or premiums).
Implicitly, the paper by Haque et al. (2022) argues that human drug prices should be driven down to pet prices. Ward and Chernew wisely argue that this approach may not be economically optimal.
…[if] we allow drug companies to charge prices above (often substantially above) cost to fulfill a past commitment designed to encourage innovation and a mechanism to elicit future innovation…. innovation does respond to profits. Profits encourage innovation by attracting capital to support innovation and raising the acquisition price when companies with innovative products are acquired by other companies (which incentivizes innovation).
In short, driving drive prices to ‘pet’ levels would shift some producer surplus to consumer surplus in the short-run, but in the long-run both producer and consumer surplus will be smaller as fewer health innovations come to market. In short, while price differences between identical human and animal drugs may seem odd on its face, this form or price discrimination may be helpful to insuring long-term innovation for people–who hopefully can afford to pay for the treatments through insurance–while still allowing our pets to get access medicines as well.