Sometimes Drug Prices Are Too Low

When Americans talk about drug prices, the conversation is dominated by the eye-popping sticker prices of certain new drugs. We’re all aware of how sky- high prices can make it hard for some patients to afford the drugs they need. Yet few appreciate how patients also lose access to treatments when prices are too low.

The federal government’s attempts to keep prices low have created a chain of unintended consequences. Start with the “best price” law of 1990, which mandated that manufacturers offer drugs to state Medicaid programs at the lowest price available to any other buyer.

The unintended—but predictable—consequence was to hurt many small clinics and hospitals. Drug companies often gave discounts to clinics and hospitals that treated a large number of low-income and uninsured patients, but the best-price law put them in a dilemma. They couldn’t keep offering those low prices unless they did so for all of Medicaid. So manufacturers stopped the discounts, causing prices to increase by more than 30% at some hospitals and clinics.

These are the opening three paragraphs of David R. Henderson and Charles L. Hooper, "Sometimes Drug Prices Are Too Low," Wall Street Journal , November 1, 2019.

It's based on a longer report that Charley and I wrote for the Goodman Institute on Public Policy (forthcoming.)

Under my contract with the Journal, I can post the whole thing on December 1 this year, and I'll do so.

The post Sometimes Drug Prices Are Too Low appeared first on Econlib.