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3
PRESCRIPTION DRUG PRICING: HOW
MUCH IS TOO MUCH
party was subsequently swept from Congress. However, the issue has returned in the last two
years, although in a slightly different vein. There has been a great deal of debate about adding a
prescription drug benefit to the Medicare program, which provides health insurance to the
elderly. As it stands, Medicare only pays for drugs administered in hospitals. Many observers
view the lack of such a benefit as the single major gap in the Medicare program.
The
Administration’s public comments about the pharmaceutical industry have become less caustic
and their policy initiatives more moderate.
Approaches aside, the issue of prescription drug
prices and potential ways to address the issue have returned to the public forum. Even though
the current debate may be about Medicare, price controls and their ramifications lurk beneath the
surface.
The easiest way to frame the debate is between those forces advocating a complete laissezfaire approach to drug pricing, pitted against individuals who desire strict federal price controls.
At some times and places, the debate is that starkly presented; in other cases, it is not. There are
numerous proposals for controlling the increasing cost of prescription drugs. Some of these rely
on more market-based approaches; some of them resemble traditional command and control.
Many of the arguments that the free market school makes apply to all policies to control drug
prices. At other times, their critique is aimed only at those policies that are the most heavyhanded. This analysis will explore the general policy of price controls on prescription drugs,