The False Promise of Drug-Price Controls

Are the laws of economics negotiable? Some foreign leaders seem to think so. They’re installing price controls in the hope of bringing down prescription-drug costs. They’re convinced they can simply decree that drug companies charge less without any consequences on public health.
They’re wrong. Drug-price controls might conceivably result in small, short-term savings, but ultimately they hurt patients by restricting access to medicines and preventing the creation of new, breakthrough treatments.

Consider the Indian healthcare system and its long history of failed price-control policies. Its National Pharmaceutical Price Authority sets hard price caps on a wide variety of Western-sourced drugs and then steadily ratchets the caps down.

Since early 2016, the authority has slashed the price of some popular diabetes drugs by 42 percent and some cancer drugs by a whopping 86 percent. Earlier this year, it cut by up to 50 percent the prices for another 33 “essential” medicines, including treatments for the common cold, arthritis, and the skin condition psoriasis.

South Korea’s price caps work in a similar way. The country’s sole public insurance program sets a maximum price for all drugs sold to its beneficiaries and then aggressively negotiates down from there. This process is notoriously opaque, with drug companies usually provided little justification for pricing decisions. And it’s drawn out, typically taking between 12 to 18 months for a submitted drug to finally get priced. During that time, sick patients can’t access new breakthroughs.

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