Why Drug Prices in America Are So High
21st September 2016
Rather than lower prices, rules for Medicare help raise them. Medicare rewards doctors for prescribing costly intravenous drugs—medicines that can account for up to 30% of an oncologist’s revenue. Medicare’s rules for pills, inhalers and so on are equally nonsensical. And it is illegal for Medicare to negotiate with drug companies. Private insurers do so instead, but the government binds their hands, for example by requiring them to pay for six broad categories of drugs, without exception. This suits pharmaceutical firms. Their biggest client is required to buy their products and prohibited from negotiating the price. These high prices support innovation, they argue—not just for America, but for the world. But it is unclear if firms’ profits need be so high to sustain research.
In other words, drug prices are high because the biggest payer, the government, will pay high prices. Sounds a lot like the college tuition ‘crisis’.