Let’s start our final chapter out with a brief exploration of the “drug pricing maze.”
Decisions have unintended consequences. Wouldn’t it be nice to keep kids from falling through thin ice? Well changing the density of ice isn’t the way to go about it. Peter explains:
We’ve shared some reasons why new drugs are expensive and, in the last chapter, explained that insurance (either private insurance or government programs like Medicare) is how we pool our money to pay for them (for those of us who need them at any one time). We also talked about how out-of-pocket (OOP) costs can still keep those drugs unaffordable — even when someone has health insurance.
When someone can’t afford their medicine because of their OOP costs, they often blame the drug companies who make that medicine. Drug companies are a convenient punching bag for Congress and state governments too — vilifying them is popular. A popular, commonly proposed solution to prescription drug affordability is legally mandated price controls (sometimes called “negotiation,” even when there’s no real negotiating going on).
But price controls on drugs don’t necessarily make them more affordable.
Here in Chapter 8, our last chapter before the course wrap up, we’re going to talk about price controls and other commonly proposed solutions to the problem of drug affordability. Let’s be clear up front: our position is that insurance design is what renders drugs unaffordable for some patients and that is what needs fixing (in no small part by capping OOP costs).
Spoiler alert: Price controls on novel medicines will only harm innovation without actually solving the affordability problem and would raise society’s costs in the future. We’re not fans of price controls or other popular forms of government regulation (e.g., Medicare “negotiation” of drug prices, except for the limited set of cases when drugs fail to go generic by about 14 years after launch), because we know that they deter investors from funding worthwhile innovation.
In this chapter, we’ll also be building on everything we’ve discussed so far to examine the different levers governments should pull to adjust how resources are distributed in a healthcare system and how those adjustments can positively impact affordability and innovation.