Analysis of bills to impose price controls on prescription drugs

By ROGER STARK  | 
Feb 5, 2020
LEGISLATIVE MEMO

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Key Facts

  1. There is a great deal of confusion and misunderstanding in the United States about drug pricing, manufacturing, marketing, and the impact of government regulations.
  2. Manufacturers do not set the final price of their drugs. Pharmaceutical pricing goes through a series of steps before drugs actually reach patients.
  3. A number of bills designed to impose price controls on prescription drugs have been introduced in Washington state’s 2020 legislative session.
  4. Several of the drug pricing bills in the 2020 legislative session deal with controlling the price of insulin, a critical drug in the treatment of diabetes.
  5. There are several reasons why insulin is so costly, mainly because there is no free market between patients and manufacturers.
  6. The government, through patent laws, also contributes to the high pricing of insulin. The basic drug has not changed in 100 years, yet manufacturers “tweak” the formula to extend the patent on the original drug.
  7. Price controls lead to less competition and ultimately shortages, even in the case of insulin.
  8. Government officials can bring down costs by streamlining the drug approval process, by modifying patent laws, by promoting investment in pharmaceutical research, and by encouraging price transparency.

Introduction


There is a great deal of confusion and misunderstanding in the United States about drug pricing, manufacturing, marketing, and the impact of government regulations. There is a growing opinion that the government should impose price controls on drugs.

Even if they worked, top-down price controls would have little effect on the cost of health care. In 2017, prescription drug costs accounted for only 10 percent of overall health care expenses in the United States. Yet the prices of certain categories of drugs, for example insulin, have increased faster than the price of pharmaceuticals in general.

Download file Continue reading the full Legislative Memo here.