Should the United States government regulate prescription prices? A critical review

Abstract

Prescription drug pricing in the United States continues to generate considerable debate. This critical review and commentary summarizes the evidence surrounding four factors often cited as contributing to high drug prices and/or as rationale for increasing government involvement in drug prices: (1) pharmaceutical industry profits, (2) government funding of basic and biomedical research, (3) "me-too" products, and (4) pharmaceutical advertising. Furthermore, it describes the potential impact of increased governmental regulations on prices and innovation in the pharmaceutical industry. Literature indicates that drug companies have consistently made higher profits than companies in other industries. Research suggests that the magnitude of that difference may be smaller than typically reported due to treatment of research and development (R&D) and marketing and promotional expenses. Research provides inconsistent results on the magnitude of that difference and the need for higher profits to compensate for the industry's level of risk. Evidence suggests that me-too drugs effectively decrease innovator products' period of market exclusivity and may modestly reduce drug prices directly or by increasing manufacturer rebates. The direct impact of advertising expenditures on drug prices is likely limited. The literature suggests that restrictions on advertising and me-too drug development would have minimal effects on prices. Government involvement in pricing products developed from government-funded research has been tried and found neither effective nor workable. These findings suggest that more widespread price regulation would likely result in decreased R&D and fewer new products. The impact of reduced R&D would, in turn, depend on the degree to which lower profits and R&D investments would stymie the development high-value, innovative new products or simply decrease the output of low-value duplicative products. In summary, this critical review of the literature found little evidence that targeted or broad government regulation of prescription prices in the United States would provide net positive societal benefits.