Duh … But

Michael Tanner has one of those articles on prescription pricing that makes you think, “Duh, that is too obvious for you to write” but then you realize “But if it is that obvious how come it doesn’t happen?”  Michael’s sensible recommendations are they we reform the FDA’s drug review policies:

And finally, we can inject more consumer choice into the health-care system by expanding health savings accounts and transitioning Medicare to a system of premium support. Nothing more effectively disciplines a market and forces down prices than engaged consumers spending their own money.

We should also recognize the pricing problem built into the economics of drug production.  Generally, drugs have enormous fixed costs that are paid upfront but the variable or additional cost of producing the drug is modest.  As long as one market (usually the USA) pays the full cost then everyone is better off if the maker sells the drug above variable cost in markets that can be separated from the main market.  Thus, other countries can get the drugs for less than the USA.  The market USA benefits because it becomes more likely that drugs are developed and prices would be even higher if there were no outside sales.  It would be nice if consumers in other countries were paying full price but at best that will happen sometimes.


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