{"id":22566,"date":"2013-10-18T00:01:02","date_gmt":"2013-10-18T05:01:02","guid":{"rendered":"http:\/\/quotulatiousness.ca\/blog\/?p=22566"},"modified":"2013-10-17T19:40:24","modified_gmt":"2013-10-18T00:40:24","slug":"qotd-the-hidden-problem-with-regulating-prescription-drug-prices","status":"publish","type":"post","link":"https:\/\/quotulatiousness.ca\/blog\/2013\/10\/18\/qotd-the-hidden-problem-with-regulating-prescription-drug-prices\/","title":{"rendered":"QotD: The hidden problem with regulating prescription drug prices"},"content":{"rendered":"<blockquote><p>[W]hen negotiating with other governments, pharmaceutical companies operate at a severe disadvantage, not because the governments\u2019 buying power is so vast (the national health-care systems of Canada and many European countries cover fewer people than Aetna), but because the people you\u2019re negotiating with can change the rules under which your product gets sold. At any point they can say, like Lord Vader, \u201cI am altering the deal. Pray that I do not alter it any further.\u201d<\/p>\n<p>But if Canada started paying more, that wouldn\u2019t mean we\u2019d pay less. Drug companies are charging what they think we will pay. The result of Canadians and Europeans paying less is not that we pay more for drugs; it\u2019s that fewer drugs get developed. To the extent that they are harming us, it is in hindering the development of cures or better treatments that we are missing, and don\u2019t even know about.<\/p>\n<p>Unfortunately, this is a classic case of Bastiat\u2019s dilemma. It is easy for each country\u2019s government to see the high prices that people are paying and intervene to lower them. It is hard for each country\u2019s government, much less its citizens, to envision the new medical treatments that they might get if they paid more for drugs. So their incentives are heavily skewed toward controlling the price here and now, even if that means losing future cures.<\/p>\n<p>Drug development is essentially a giant international collective-action problem. The U.S. has kept it from being a total disaster because we don\u2019t have good centralized control of our insurance market, and our political system is pretty disorganized and easy to lobby. If that changes &mdash; and maybe we just changed it! &mdash; we\u2019ll knock down the prices of drugs to near the marginal cost using government fiat, and I expect that innovation in this sector will grind to a halt. Stuff will still be coming out of academic labs, but no one is going to take those promising targets and turn them into actual drugs. <\/p>\n<p>Megan McArdle, <a href=\"http:\/\/www.bloomberg.com\/news\/2013-10-14\/u-s-consumers-foot-the-bill-for-cheap-drugs-in-europe-and-canada.html\" target=\"_blank\">&#8220;U.S. Consumers Foot the Bill for Cheap Drugs in Europe and Canada&#8221;, <em>Bloomberg<\/em><\/a>, 2013-10-14<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>[W]hen negotiating with other governments, pharmaceutical companies operate at a severe disadvantage, not because the governments\u2019 buying power is so vast (the national health-care systems of Canada and many European countries cover fewer people than Aetna), but because the people you\u2019re negotiating with can change the rules under which your product gets sold. At any [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[6,25,84,66,41],"tags":[119,174,469,661,513,162],"class_list":["post-22566","post","type-post","status-publish","format-standard","hentry","category-cancon","category-economics","category-government","category-health-science","category-quotations","tag-drugs","tag-innovation","tag-monopolies","tag-regulation","tag-research","tag-socializedmedicine"],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p2hpV6-5RY","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/22566","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/comments?post=22566"}],"version-history":[{"count":2,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/22566\/revisions"}],"predecessor-version":[{"id":22568,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/posts\/22566\/revisions\/22568"}],"wp:attachment":[{"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/media?parent=22566"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/categories?post=22566"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/quotulatiousness.ca\/blog\/wp-json\/wp\/v2\/tags?post=22566"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}