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New drugs are expensive in the U
New drugs are expensive in the U.S. For example, there are new pain relievers to treat severe arthritis, but they cost $150 a month, nearly 20 times more than previous pain relievers. A new biotech drug, Enbrel, to treat rheumatoid arthritis can cost $1,500 a month.
a. Which factors have contributed most to the sharp increase in drug expenditures?
b. Are rising drug expenditures necessarily bad? And how to control drug costs?
Expert Solution
a) The main reason behind the high drug prices in the US is the lack of regulations. A lot of other countries have regulatory bodies that are able to put a cap on drug prices. This is not the case in the US. The drug prices are set based on the market requirement and the forces of demand and supply. This causes the prices to soar.
b) A rationale for high drug prices is that the high prices lead to high profits. It is these profits that attract investors. Without this investor money, innovation would stop and new drugs would stop coming to the market.
Drug prices can be controlled through government intervention. This intervention does not need to be forced. There can be negotiations between the government and the pharmaceutical companies.
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