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Policy options for the drug pricing conundrum

Author

Listed:
  • Kate Ho

    (a Department of Economics , Princeton University and National Bureau for Economic Research , Princeton , NJ 08540)

  • Ariel Pakes

    (b Department of Economics , Harvard University and NBER , Cambridge , MA 02138)

Abstract

Current proposals aimed at reducing U.S. pharmaceutical prices would have immediate benefits (particularly for low-income and elderly populations), but could dramatically reduce firms’ investment in potentially highly welfare-improving Research and Development (R&D). The United States subsidizes the worldwide pharmaceutical market: U.S. drug prices are more than 250% of those in other Organization for Economic Co-operation and Development (OECD) countries. If each drug had a single international price across the highest-income OECD countries and total pharmaceutical firm profits were held fixed: U.S. prices would fall by half; every other country’s prices would increase (by 28 to over 300%); and R&D incentives would be maintained. We propose a potential lever for the U.S. government to influence worldwide drug pricing: access to the Medicare market.

Suggested Citation

  • Kate Ho & Ariel Pakes, 2025. "Policy options for the drug pricing conundrum," Proceedings of the National Academy of Sciences, Proceedings of the National Academy of Sciences, vol. 122(9), pages 2418540122-, March.
    • Handle: RePEc:nas:journl:v:122:y:2025:p:e2418540122
    DOI: 10.1073/pnas.2418540122
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