Prescription Drugs Save Lives at a (Mostly) Reasonable Cost

Prescription drugs are an extraordinary lifesaving and life-enhancing technology, so integrated into our daily lives that, nowadays, we perhaps take them for granted. Headlines and public policy debates focus on their cost, particularly pre-discount “list prices” that almost no one pays.

The good news is prescription drug prices have actually fallen since President Trump took office. The better news is how facially expensive pharmaceuticals improve our lives.

Every day, two out of three Americans take prescription drugs. In fact, nearly a third take four or more drugs. These drugs target a range of maladies. Some manage cholesterol and prevent heart attacks and strokes, others control glucose levels to improve the health of diabetics, and still others help people suffering from arthritis, asthma, and severe allergies. The number and breadth of prescription drugs have grown markedly over the past 40 years.

Innovation is not free, of course, and pharmaceutical companies, like every other industry, are a business. But prices in medicine work the same way they do in every other industry. Prices signal to developers where to focus their research and energy. The prospect of a treatment that would be extremely valuable to patients, such as the recent breakthrough drug treating pancreatic cancer, spurs investment and innovation.

In some cases, high prices are necessary just to recoup the investment. Currently, because of the byzantine regulatory approval process for drugs, the drug companies spend around a billion dollars for every new drug they get approved. That’s in the range of a modern NFL stadium.

Another cost driver is treatment for rare diseases. Comparatively few people contract diseases such as cystic fibrosis or sickle cell anemia, yet we all want those people to have access to effective drugs for treatment. For companies, targeting a narrow patient group increases their development costs without greatly expanding their consumer base.

Even so, strong evidence shows that even high-priced drugs lead to lower medical costs overall in the short run and, especially, the long run. Economic researchers periodically analyze whether prescription drugs are so effective at treating a malady that they reduce the need for patients to go to the hospital or see a doctor for scans or expensive procedures. These researchers consistently find that even the expensive drugs are worth the cost.

For example, a daily statin costs pennies, but can prevent a heart attack that would require bypass surgery and weeks of intensive care costing hundreds of thousands of dollars. Modern drugs for diabetes can cost a few thousand dollars a year (net of rebates), which sounds expensive until you realize they can substitute for dialysis, which costs around $90,000 annually.

In the late 2010s to early 2020s, health economists noticed that overall health-care cost growth had slowed considerably. Upon review, they concluded that a significant part of that was because prescription drugs reduce the higher cost of care. That’s a major win.

And when discussing prescription drug costs, it’s worth noting that high prices on individual medications have proven temporary. Once patented, drug manufacturers have a 20-year monopoly on that drug. Since the development process takes up a significant chunk of those two decades, their actual market monopoly is much shorter. After the patent expires, the drug enters the public domain, and any company can produce and sell a generic version.

Read the full article at the National Review.