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March 28 2018

Why Are Pharmaceutical Drugs So Expensive? Sen. McCaskill’s Report Misses Larger Picture

by Heather Madden

On Monday, Senator Claire McCaskill’s office released a report examining overall price increases for the top 20 brand-name prescription drugs in the United States. According to the report, the price for these drugs increased an average of 12 percent every year for five years, more than 10 times the rate of inflation.

Unfortunately, Senator McCaskill’s report misses the larger picture by only examining the wholesale list price, not what patients actually pay. Oftentimes, rebates and discounts are privately negotiated and don’t have to be disclosed to the public.

Instead, we should consider that many factors that have contributed to the rising cost of pharmaceutical drugs. As IWF’s February policy focus explains, there are various reasons that pharmaceutical drugs are so expensive, including the great cost of research, development, and drug trials, as well as bad government policies that promote the role of third-party payers, or middlemen, in transactions where they are not needed.

Most Americans, about six in ten, say that lowering the cost of prescription drugs should be a priority for the President and Congress. Similarly, a new poll from Gallup found that 55 percent of Americans worry “a great deal” about healthcare costs and availability, topping the list of concerns.

Sen. McCaskill’s proposed solution to rising drug costs is to expand the role of government in setting prices. At a press conference, the Senator said, “It’s ridiculous that the federal government would be this big of a customer of the pharmaceutical industry but be prohibited by law from negotiating the best deal possible.”

Sen. McCaskill is right that rising drug prices is an issue we cannot ignore, but her approach could lead to unintended consequences, such as drug shortages and reduced innovation.  Our policy focus explains this in more depth, and a recent poll shows that when confronted with the downsides of such an approach, most Americans don’t support it. 

Members of Congress on both sides of the aisle agree that steps can be taken to curb the cost of prescription drugs, they just disagree on how to address the problem. If policymakers really want to make pharmaceutical drugs more affordable and accessible, they should focus on reducing the role of third-party payers and finding ways to foster greater individual choice and market competition.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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