Over the years, the healthcare industry has been actively researching with the goal of developing drugs that would potentially find the cure for many life-threatening diseases, save the lives of people and improve their health. In 2014, records revealed that this advocacy costs approximately US$ 53,253.1 million in the United States alone (PhRMA, 2016) while developing a successful medicine would cost US$ 2.6 billion (IFPMA, 2017). The growing cost of developing drugs is considered alarming for consumers because they fear that they will be left carrying the burden of paying for the pharmaceutical companies’ expenses on R&D. The government’s solution to this predicament is through pharmaceutical price regulation. The goal of this policy is to ensure that drugs are more accessible to the public (Danzon, Wang & Wang, 2005). However, this is only effective if the drugs reach the market. Unfortunately, this price regulation may have adverse effects on the cost and quality of healthcare (Lichtenberg, 2018). Pharmaceutical companies invest a lot of their resources to create a medicine that would effectively cure an illness or manage the symptoms with minimal side-effects. From a business perspective, these companies would like to recover their expenses and earn profits from this venture. Naturally, the majority of these drugs will be launch at a higher price. If the government regulate the cost of medicines, pharmaceutical companies would be forced to cut down their expenditures by reducing the supply of external capital. In return, this will compromise the development of new drugs . (Danzon, Wang & Wang, 2005) Furthermore, the production of existing drugs might also be compromised since pharmaceutical companies will try to regulate production to ensure a profit. Controlling the supply is also a way of manipulating the price. The cost and quality of healthcare may be compromised as pharmaceutical companies lose the incentive to engage in research and development of new drugs.
References
2016 PhRMA Annual Membership Survey. (2016). Retrieved from http://www.phrma.org/sites/default/files/pdf/annual-membership-survey-results.pdf
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Danzon, P., Wang, Y., & Wang, L. (2005). The impact of price regulation on the launch delay of new drugs?evidence from twenty-five major markets in the 1990s. Health Economics , 14 (3), 269-292. doi: 10.1002/hec.931
Lichtenberg, F. (2018). “Do (More and Better) Drugs Keep People Out of Hospitals?. The American Economic Review , 86 (2), 384-388.
The Pharmaceutical Industry and Global Health: 2017 Facts and Figures. (2017). Retrieved from https://www.ifpma.org/wp-content/uploads/2017/02/IFPMA-Facts-And-Figures-2017.pdf
