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  • Writer's pictureJennifer Light

Price Ceilings on Big Pharma: A Path to Affordability

Over the past decade, medicine and over the counter drugs have seen drastic increases. From July 2013 to July 2014, prices of more than 1,200 generic over the counter drugs increased by an average of 448%. In 2021 alone, 589 drugs alone have seen price hikes, according to Goodrx.

The impact of big pharma overpricing over the counter drugs has taken a drastic toll on Americans amidst the pandemic. With an increase in price, it’s no wonder that 33% of all prescriptions are ultimately never filled. A report from KFF Health confirms this, explaining that more than 1 in 4 Americans who are prescribed prescription drugs report difficulty affording them.

Luckily, the government imposing a price ceiling on the pharmaceutical industry may be the solution.

Exemplified by other countries across the world, a price ceiling effectively drops the price and makes it affordable for consumers. For example, nations like Australia, Switzerland, the UK, all have government regulations in place to control drug prices. According to the Harvard Business Review, prices in advanced countries are often 50% cheaper than what Americans pay for drugs. And according to Vox, the United States outranks all these nations in the cost of drugs. For example, prices in Norway, the fourth wealthiest country in the world (the U.S. is number 6), are amongst the lowest in Western Europe. In the USA, Humira (used to treat Arthritis and many other major health issues) costs $2,669 while the same drug in the UK, the runner-up, costs around $1,500 and less than 1,000 in Switzerland. The same can be said for Avastin, Harvoni, and other drugs. Compared to the OECD average of 515 dollars, Americans spend double with 1,026 dollars annually, not even because we buy more drugs! The Los Angeles Times explains that other nations keep a close eye on what pharmaceutical companies charge in drugstores. In Canada, for example, the Patented Medicine Prices Review Board ensures that drug companies can't gouge patients just because they can. They purposely ensure that drug prices “are not excessive” so companies can’t heavily overprice. They also have a law requiring that breakthrough new drugs like Sovaldi can't be priced higher than the median price around the world, ensuring that the price for Canadians is fair relative to what people elsewhere are paying.

The bottom line is that most countries play hardball on drug prices, while the U.S. pays retail. As a result, consumers in the U.S. are stuck footing most of the bill for developing new drugs, even as consumers throughout the developed world reap the benefits.

Not only this, but price ceilings have the potential to encourage and boost new medical discoveries and innovation. According to Vivian Ho, more than 50% of important discoveries are made in academic research centers, funded by taxpayers, and 85% of basic research is conducted in academic centers. Basically, innovation is driven by independent investigators who will continue to conduct research even if drug prices fall. A study done by Nature says that it “does not find support to the claim of R&D differences between the US and European organizations.” In other words, organizations that are subject to price control are just as productive in research and development as US ones. With a price ceiling preventing companies from overpricing life-saving drugs, they would be forced to turn to R&D. With the production of new, innovative drugs, the price would be allowed to set higher, and pharma companies would find the profits they’re looking for. Additionally, with the rapid innovation of new drugs, the market wouldn’t be oversaturated with overpriced dupes and generic drugs.

The approval times of these new innovative drugs could speed up as well because the organizations with their headquarters based in European countries are characterised by a higher probability of market launch for compounds entering clinical development.

If other nations, modernized nations, can control drug prices to keep drug companies in check while increasing innovation and ensure that what the market equilibrium price is is not too much for consumers to bear, why can’t the United States do the same to ensure that our citizens are not held hostage by large drug companies?

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