David R. Henderson  

Hooper and Henderson on Drug Prices

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Patients are heavily insulated from the costs of their care partly because of long-term efforts by policymakers and advocates on the political left. The Affordable Care Act was a notable exception to this trend and, according to the Kaiser Family Foundation, following the legislation's passage, patients' insurance deductibles have increased six times as fast as average wages. Presidential aspirant Hillary Clinton would insulate those patients more; her "solution" to the current drug price problem is to limit consumers' monthly out-of-pocket costs for medications. This would counteract one desired effect of the Affordable Care Act encouraging drug consumers to economize--and would ultimately lead to higher drug prices. Patients' insulation from costs makes them less sensitive to all medical prices, and this lack of sensitivity encourages companies to charge higher prices. If patients paid a larger share of prices (or even knew the prices), then health care costs--including drug prices--would increase more slowly or even fall.
This is from Charles L. Hooper and David R. Henderson, "Want Cheaper Drugs?" It appeared in the latest issue of Regulation.

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COMMENTS (5 to date)
john hare writes:

A while back a doctor prescribed a medicine for me warning that it was expensive and I might need to get an alternative. When I got to my drugstore, the pharmacist told me that he hadn't filled the prescription yet because I had no insurance and it was $1,200.00. I asked for the alternative and he called the doctor. $38.00 cash for something effective enough. No idea if the more expensive would have been any better considering that the cheaper solved the problem.

Noah writes:

Most people don't want to take any medications unless they really need to.

ZC writes:

@Noah "Most people don't want to take any medications unless they really need to."

I'm going to venture a guess that you don't work in medicine, or if you do, you don't have any patient contact. While you or I probably don't want to take any medications other than those are absolutely necessary, the same can't be said for everyone. It's always interesting when you query why a patient is taking 20 or 30 different medications (not an unusual occurance) and they have no idea why they take half or more of them.

Suffice it to say that, pertinent to the post, being insulated from prices and costs provides zero incentive for these patients to consider if or how much they need what they're prescribed, which contributes to furthering the medical-industrial complex. While Munchausen's is the severe end of the spectrum, a large (and costly) number of people derive benefits from how 'sick' they are and how many doctors they see/medicines they take for any number of psychological reasons. Insulation from costs enables these people.

ThaomasH writes:

I want doctors, not patients, trying to decide on the cost benefit of a particular drug. Maybe if patients had to pay out more they would push the decision back to where it can be made more appropriately, but that would be an indirect effect.

ZC writes:


The problem with you wanting doctors to decide the cost/benefit of a particular drug is that doctors generally have no idea what a treatment/drug/procedure will cost relative to alternative treatments for a particular patient. That's the problem with health-care financing and third party payors

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