The Problems of Price Controls: History Shows that These Policies Lead to Shortages and Stagnation; so Why Do We Want to Control Prescription Drug Prices?

Abstract

One of the most important issues to Americans is how to manage prescription drug prices, especially for seniors who depend on Medicare coverage. Some policy advocates are urging the federal government to contract directly with drug manufacturers to purchase drugs for seniors -- at prices set by the government. Despite the good intentions of these advocates, such price controls could be very harmful to Americans' future health. When prices are held below natural levels, resources such as talent and investor capital leave an industry to seek a better return elsewhere. This means that there will be less discovery and innovation, and fewer new drugs will become available to consumers. Often, this change happens over the long term -- longer than the tenure of any policymaker. Thus, it is vitally important to remind policy-makers of the effects of price controls whenever they are proposed as government policy.