WHAT SHOULD THE DOCTOR ORDER? THE BAD SIDE EFFECTS OF LOW DRUG PRICES
November 15, 2006
By attempting to hold down drug prices, the Italian government has deprived its citizens of the best care without reducing healthcare spending. And it has deprived the country of what could be a vibrant sector of the economy. U.S. policy leaders should be careful not to make the same mistake, says Alberto Mingardi, director of the Istituto Bruno Leoni, an Italian think tank.
In Italy, price controls have created a number of problems, he says.
They distort the laws of supply and demand:
- Because of the country's artificially low drug prices, demand for pharmaceuticals is artificially high -- higher than it would be under free-market conditions.
- The point is that the government's attempt to force down drug prices has not reduced overall healthcare spending.
- Rather, it has resulted in a spike in demand -- which is one reason why Italy's healthcare spending has skyrocketed, growing nearly 68 percent between 1995 and 2003.
They harm Italy's quality of care:
- With demand for drugs rising, the Italian government has attempted to save money by adopting reimbursement policies that favor certain drugs.
- Unfortunately, the most innovative products often aren't considered reimbursable by the government precisely because they are the most expensive.
- It's a great system if you just need an antibiotic, but if you're hoping to avoid open-heart surgery through access to a miracle drug, it can be a nightmare.
They harm the economy:
- Because it's simply not profitable for companies to invent cures in Italy, price controls have decimated Italy's pharmaceutical industry.
- Today, not one of the world's 50 largest drug manufacturers has its headquarters in Italy, even though the country is the world's seventh-largest economy.
- Because most drug and biotechnology companies are outside Italy's borders, there are only 84,000 pharmaceutical workers in Italy's entire drug industry.
Source: Alberto Mingardi, "What should the doctor order? The bad side effects of low drug prices," Washington Post/Fort Worth Star-Telegram, November 15, 2006.
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