Can Regulating Prescription Prices Hurt Americans' Health?

Source: Wall Street Journal

The economic principle I’m exploring is “What are the current regulations regarding medicinal prices?”
My research question is: “Why lowering prescription prices could hurt the US?”

An article published in DrugCostFacts.org titled “Shouldn't the U.S. Government do more to regulate high drug prices?” demonstrates this economic principle by showing how the free market system of the US has led to growth in the prescription industry, how history has shown the free market has incentivized innovation, and how innovation is stifled when profits are capped.

The article first goes into the numbers of “drug production” in the world. The graphic from the Milken Institute displays that 57% of the entire world’s new drugs are being created and produced in the US. To explain this whopping number, the article writes that “what makes the United States stand out is its commitment to a competitive, free market system for drugs that doesn’t impose artificial limitations on successful innovations.” By not controlling the boundaries for net gain on companies, the US offers an incentive to create and innovate, because the companies could win huge from their inventions. Even if what the companies gain is less than what the cap is in other areas, the mere idea of possibilities for these companies is enough to drive them to create.

To bolster its point, the article cites many examples as to why “throughout history, advances in science and drug development in the United States have increased when Congress passed legislation that supports, promotes, and incentivizes the innovation being conducted in the lab.” They cite many acts from Congress over the years as being beneficial to the growth of American medicine. To name a few, “the Orphan Drug Act, the Hatch/Waxman Act, the Prescription Drug User Fee Act, the Food and Drug Administration Modernization Act, the Biologics Price Competition and Innovation Act, the creation of the Small Business Innovation Research program, and the Jumpstart Our Business Startups Act, among others.” The vast array of examples this article uses shows us why the US controls 57% of the medicinal market. Even though the US is not the only free market state in the world, the scale to which the US has incentivized this market for companies has shown profitable for both companies and everyday Americans who need the medicine being created.

Finally, the article argues against the claims I have explored in previous posts: the US should more firmly regulate the US drug market. They write “The reality is that short-sighted laws, regulations and insurance policies can scare away the private investment that is needed to fund biopharmaceutical research and to deliver new cures to patients in need.” Regulations that can stifle the profit of companies, can affect the core of the company. Most companies have to spend to make, so researching companies often rely on private investors or philanthropists rather than subsidies for the bulk of the money going into research. If investors see the loss of profit from these regulations, they may back out from the start, blocking the companies from making any progress. This article argues that these new drugs will cease to exist if we force investors hands with pricey regulations.

In my next blog post I will summarize the research I have done to this point