The Prescription for Rising Drug Prices: Competition or Price Controls?

33 Pages Posted: 8 Mar 2016 Last revised: 8 Apr 2016

Joanna Shepherd

Emory University School of Law

Date Written: March 1, 2016

Abstract

With spending on pharmaceuticals increasing at an unprecedented rate, policy makers are looking for explanations and demanding change. In this Article, I explain why proposed reforms that facilitate competition will produce better results and fewer negative consequences than reforms imposing new price controls on the pharmaceutical industry. Price controls are government-mandated limits on prices or government-required discounts on prices. Over 40 percent of drugs currently sold in the U.S. are sold under government programs that mandate price controls. However, basic economic principles, past experience, and empirical data indicate that new price controls will likely increase drug prices for some consumers, slow pharmaceutical innovation, curtail generic competition, and reduce consumer choice. In contrast, reforms aimed at promoting competition will expand product offerings, lower drug prices, and incentivize innovation. I propose many actions the government can take to facilitate competition: reduce the generic approval backlog at the FDA, expedite biosimilar alternatives, and target certain anticompetitive behaviors. These reforms will ensure that patients can continue to afford life-saving and life-enhancing medications.

Keywords: pharmaceuticals, price controls, competition, FDA, biosimilars, drug prices

Suggested Citation

Shepherd, Joanna, The Prescription for Rising Drug Prices: Competition or Price Controls? (March 1, 2016). Health Matrix: Journal of Law-Medicine, Forthcoming; Emory Legal Studies Research Paper No. 16-403. Available at SSRN: https://ssrn.com/abstract=2743242

Joanna Shepherd (Contact Author)

Emory University School of Law ( email )

1301 Clifton Road
Atlanta, GA 30322
United States
404-727-8957 (Phone)

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