How Government Policy Promotes High Drug Prices

It is a bedrock principle of capitalism that as competition erodes profits on established products, enterprises will invest in innovation to earn higher profits from new products. US law governing prescription pharmaceutical markets abandons that principle and gives every new drug a long-term monopoly that prohibits competition. It also discourages competition between medicines based on comparative price or effectiveness. High prices and slow innovation cycles are the inevitable result and will remain so unless Congress makes fundamental changes in existing law. According to the Pharmaceutical Manufacturers Association, it takes at least 10 years to develop a new drug. It is no surprise that the typical monopoly period on an existing drug is also 10-12 years. Why rush to bring a new product to market when a monopoly makes it possible to raise the price of the old one with impunity? Patents covering products other than drugs rarely provide the ability to charge any price. They are normally limited to a specific innovation and do not prevent competition from similar products. There are always many computers, TVs, and smartphones to choose between. Patent litigation also takes years to complete and the vast majority of cases are ultimately settled because the pace of new innovations is often faster than the time it takes to acquire or enforce a patent on an existing innovation. The iPhone supplanted the Blackberry in far less than the 20 year life of Blackberry’s patents. In c...
Source: Health Affairs Blog - Category: Health Management Authors: Tags: Costs and Spending Drugs and Medical Technology Featured Payment Policy Quality 21st Century Cures Act Big Pharma Comparative Effectiveness FDA generic drugs Hatch-Waxman Act Prescription Drugs Source Type: blogs