Drug Prices and the Value of Drugs

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  • 03/21/2006

I will be writing about this issue in far greater depth soon, but there seems to be a view in Beltwayland, among the suburbs of which are the NY Times and the LA Times, that drug prices ought in some sense to reflect “costs,” however defined, and that efforts by the pharmaceutical producers to establish prices for new drugs in accordance with their higher economic (or medical) value is illegitimate.

Well. Let us recognize that politics by its very nature is the art of wealth redistribution, always and everywhere, and so discussions of drug prices must proceed with that context firmly in mind. Drug development is a process of iterative investment, research, and testing; that process must appeal to the capital market (investors) in order to be viable, that is, expected returns (adjusted for risk) must justify the prospective costs of the development process for any given project. If prices reflect only costs and not value, investment streams will be reduced from levels that would prevail otherwise; and that means automatically that the future supply of new and improved medicines will be lower than in the alternative.

And so the preference for cost-based drug pricing on the part of those utterly compassionate with other people’s money in the end boils down to the argument that future patients ought to subsidize current ones. It is only a coincidence, of course, that it is the current patients who vote; thus does the wealth redistribution dynamic emerge yet again. And yet again the highminded compassion of the elites proves as phony as it is in so very many other contexts, except that a reduction in the supply of drugs means more future suffering and higher medical costs overall. Such are the outcomes yielded by the nostrums of the unthinking.


Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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