Policy Documents

Are Drug Price Controls Good For Your Health?

John A. Vernon, Rexford E. Santerre, and Carmelo Giaccotto –
December 1, 2004

In this enlightening article, the authors' discuss the importance of Medicare Prescription Drug, Improvement and Modernization Act to provide seniors drug insurance coverage and the governements role in price control.

By 2006, the federal government will be purchasing or paying for nearly 60 percent of all prescription drugs in the United States, making it the most important buyer of medicines in America.  Hence, we might assume that federal price controls will reduce incentives to invest in new drug development.  To determine how direct Medicare negotiation and formulary restrictions might affect pharmaceutical and biotechnology R&D, in this study we examine how government influence has historically afected pharmaceutical prices.  Based upon this evidence from the past, we can infer, rather than speculate about, the impact of what happens to pharmaceutical and biotechnology prices and R&D in the future as government exerts more control over prices.