Ten Myths about the Market for Prescription Drugs
Introduction
In the past year, critics have complained that prescription drugs are contributing to escalating health care costs in the United States. Some also assail drug manufacturers, contending that drug prices are too high. They propose price controls as a way to lower drug prices. One bill currently before Congress, the Prescription Drug Fairness for Seniors Act, introduced by Rep. Thomas Allen (D-Maine), proposes a form of price controls on drugs sold to the elderly. President Clinton has proposed a prescription drug plan that would use private pharmacy benefit firms to negotiate drug prices with pharmaceutical firms and give Medicare the final say in what discounts the government can extract and what drugs seniors can use. Thus the Clinton plan hides government price controls behind a scrim of private sector contractors.
"Price controls have a consistent history: they don't work."
Price controls have a consistent history: they don't work. Whether they apply to air fares, gasoline, telecommunications or medicines, they discourage innovation, create shortages and fail to keep prices in check. Further, they harm the poor by making whatever is controlled more difficult and more expensive to obtain. Economist Ludwig von Mises once observed, "Economics does not say that isolated government interference with the prices of only one commodity or a few commodities is unfair, bad or infeasible. It says that such interference produces results contrary to its purpose, that it makes conditions worse, not better...."1
This paper examines a number of myths used to support the claim that drug prices are too high and that price controls are the best way to bring them down.