Drug Pricing and its Discontents: At Home and Abroad
AEI Health Policy Outlook No. 9 August 2007
9 Pages Posted: 23 Oct 2013
Date Written: August 9, 2007
This Health Policy Outlook assesses the market for chronic disease medications such as antiretroviral drugs (ARVs) to treat HIV/AIDS. A tiered, or differential, pricing structure serves public health by ensuring the greatest affordability of patented drugs as well as maximizing profits to the innovator. Ending differential pricing could increase access for some patients in the short run, but would pose a severe threat to global drug innovation in the long run, and probably lower access for some patients. Differential pricing appears haphazard, often because negotiations among drug companies, insurers, government providers, pharmacies, and other retailers are opaque. There is no doubt the pricing system could be improved. Many companies differentiate prices according to socioeconomic indicators to make them equally affordable to people with different incomes and to countries with varying disease burdens. Ideally, this approach simultaneously yields prices affordable to both low- and middle-income countries and maintains incentives for research and development (R&D). Concerns within pharmaceutical companies about pricing approaches, however, prevent sensible collaboration on the correct approach to differential pricing.
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