Drug Pricing

Amazingly, there’s an actual debate going on over whether consumers should be allowed to see drug prices in drug advertising.

Stacie Dusetzina, Vanderbilt University School of Medicine’s Associate Professor of Health Policy and the Ingram Associate Professor of Cancer Research, argued—in all seriousness—in a recent Wall Street Journal example of the debate (see the link) in favor of the following points:

  • disclosure of list prices may deter some people from seeking treatment
  • disclosing prices could backfire by creating an artificial sense of “value” due to a high price tag
  • the idea behind the proposal is to shame manufacturers into lowering list prices or limiting price increases by requiring them to disclose just how high their prices are

Wow.  In reverse order….

No, the idea behind the proposal is not to shame or to limit price increases by requiring manufacturers to disclose just how high their prices are. The idea is competition.  The idea is to limit price increases or to lower prices by forcing manufacturers to compete in an open, free market environment.  This, just incidentally, also will force intermediaries and pharmacies as end-sellers to compete on pricing in a similarly open, free market environment.

No, disclosing prices won’t create an artificial sense of “value” from a high price.  Dusetzina must really think Americans are stupid to pay artificially inflated prices simply because the prices are high.  That may be the case for luxury cars or fancy purses or other objects of ego-driven conspicuous consumption, but it’s most assuredly not the case for the working man or woman—which is to say the vast majority of us—buying necessities or even the merely nice-to-haves.  If we were stupid enough to buy the higher priced good or service just because it was more expensive, grocery store prices would be much higher than they are now.

No, disclosure of list prices won’t deter many of us from seeking treatment at all.  What it will do is let us see the lowering prices make getting treatment more affordable.  Besides, even for those few of us who do defer or avoid treatment because of those prices; that’s our choice, not Government’s to make for us, not even indirectly by manipulating our accesses.

Price information—especially price information available before any decision to buy or not to buy—is critical to competition.  And it’s that competition that will drive drug prices to their natural levels—the cost of producing and marketing them—and not a penny more.  Even the profit margin that competitive companies legitimately can collect will be eaten into by that competition.  Look at those grocery stores, again.

Hiding price information is absolutely antithetical to free markets and low prices.

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