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Medical Progress Report
No. 1  December 2004


Are Drug Price Controls Good for Your Health?

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Center for Civic Innovation.

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MPR 01 PDF (92 kb)

WHAT THE PRESS SAID:

Rx Price Controls Would Be Disastrous For Innovation, Study Says FDAnews.com, 12-15-04
Price Controls on Medicare-Covered Drugs Would Mean Less Innovation, Report Finds
BNA, 12-9-04
Report Warns of Drug Price Controls Washington Times, 12-8-04

SUMMARY:
Critics of the new Medicare drug benefit have called for the government to use its increased purchasing power to drive down drug prices. This study examines the effects of government pressure on pharmaceutical prices and R&D from 1960-2001. During that time, it finds that the government induced a loss of capitalized pharmaceutical R&D expenditures of $188 billion, resulting in 140 million lost life years due to the absence of new medicines. Applying this same analysis to the future, it finds that if government tries to use its new buying power to reduce drug prices R&D spending will drop by nearly 40%, resulting in a loss of 277 million life years. Consequently, policymakers should consider the trade-offs between lower drug prices now and the future health benefits of increased R&D spending.

TABLE OF CONTENTS:

EXECUTIVE SUMMARY

BACKGROUND AND PURPOSE OF STUDY

The MMA and the Noninterference Clause

The Original Medicare Act and the Noninterference Clause

Drug Price Controls and Innovation

Purpose of This Study

U.S. GOVERNMENT’S HISTORICAL INFLUENCE ON PHARMACEUTICAL PRICING

Mechanisms of Government Influence

Impact of Government Influence on Drug Prices, 1960 to 2001

Simulated Real Drug Prices with and without Government Influence, 1960 to 2001

Figure 1: Simulated Impact of Government Influence on Real Drug Prices

GOVERNMENT INFLUENCE ON PHARMACEUTICAL R&D AND LIFE YEARS LOST

Figure 2: Estimates of Lost R&D Because of Government Influence on Drug Prices

Figure 3: Effect of Lost Life Years on U.S. Economy

The Potential Future Costs of the MMA

Figure 4: 2004 Estimated Present Value Cost of the MMA’s Negative Impact on Pharmaceutical Innovation

CONCLUSIONS

REFERENCES

APPENDIX: MULTIPLE REGRESSION FINDINGS

ABOUT THE AUTHORS

ENDNOTES

 


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