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Want More Value from Prescription Drugs? We Need to Let Prices Rise and Fall

Author

Listed:
  • Goldman Dana P.

    (Director of the Leonard D. Schaeffer Center for Health Policy and Economics at the University of Southern California, 3335 S. Figueroa Street, Unit A, Los Angeles, CA 90089, USA)

  • Leive Adam

    (Doctoral Student in Health Economics at the University of Pennsylvania’s Wharton School, Philadelphia, PA, USA)

  • Lakdawalla Darius

    (Quintiles Chair in Pharmaceutical Development and Regulatory Innovation, University of Southern California, Los Angeles, CA, USA)

Abstract

The high price of some cancer drugs has recently come under attack by the medical profession. We examine the reasons behind the pricing strategies of cancer drugs. On the one hand, prices should reflect value and research demonstrates that the health benefits from novel cancer drugs have been enormous in terms of additional years of life patients can now enjoy. This provides some justification for the high price tag of these drugs. On the other hand, drug pricing is also a product of a hidebound reimbursement system that does a poor job in letting prices adjust to new information about value. Regulators set thresholds for cost-effectiveness, which establishes not only a price ceiling but also a price floor. Manufacturers often price drugs high at launch in efforts to recoup their initial investment, but a more efficient system would allow prices to both rise and fall over time. Removing distortions in the reimbursement system is crucial to ensuring continued success in saving lives.

Suggested Citation

  • Goldman Dana P. & Leive Adam & Lakdawalla Darius, 2013. "Want More Value from Prescription Drugs? We Need to Let Prices Rise and Fall," The Economists' Voice, De Gruyter, vol. 10(1), pages 39-43, December.
    • Handle: RePEc:bpj:evoice:v:10:y:2013:i:1:p:39-43:n:1
    DOI: 10.1515/ev-2013-0027
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