Tuesday, November 14, 2006

Medicare prescription drug prices

The question of whether the U.S. government should use its monopsony power on the consumer side of the prescription drug market to negotiate lower drug prices is truly a no-brainer. I verge on thinking that one has to be financially involved with the drug companies, or else woefully uninformed about the U.S. healthcare market, to think otherwise.

In a well-functioning competitive market, the exercise of monopsony power, no less than of monopoly power, leads to inefficiency, from suppressed transactions that would have created social surplus (i.e., value to the consumer in excess of cost to the supplier).

In the market for healthcare services including prescription drugs, however, we have a reasonably competitive market (subject to patents and the like) except for one little detail: consumers are not paying at the margin for what they get.

When you have a functioning market except that consumers aren't paying at the margin for what they get, it can be worse than not having a market to begin with. But certainly, in these circumstances, the argument that exercising monopsony power inefficiently suppresses demand has no credibility.


Daniel Haszard said...

My issue is Zyprexa which is only FDA approved for schizophrenia (.5-1% of pop) and some bipolar (2% pop) and then an even smaller percentage of theses two groups.
So how does Zyprexa get to be the 7th largest drug sale in the world?

Eli Lilly is in deep trouble for using their drug reps to 'encourage' doctors to write zyprexa for non-FDA approved 'off label' uses.

The drug causes increased diabetes risk,and medicare picks up all the expensive fallout.There are now 7 states (and counting) going after Lilly for fraud and restitution.

Daniel Haszard

Lily said...

The pharmacist said my Amlodipine would cost $160 and then I remembered to give him the prescription discount card that I bought from www.rxdrugcard.com. Then the cost was only $10.50.