The Paradox of Pricing pt. 1: Drugs
A striking feature of the recent presidential primary debates has been the candidates’ conspicuous ignorance of the drivers of our healthcare system’s irrepressible costs and middling patient outcomes. All agree, correctly, that the U.S. is in deep trouble: of the 10 wealthiest nations, we spend almost twice the average on healthcare (18% of our GDP) and yet have the lowest life expectancy and quality ratings to show for it. Hard working families are struggling to pay rapidly increasing insurance premiums, and high deductibles, co-pays, and coinsurance make matters worse.
How convenient it would be if we could blame all this on a single, obvious bad guy! Politicians love to shoot invectives at “evil” insurance and pharmaceutical companies. But among those of us who witness the system up-close, the reality is far more complex. There are no tidy culprits here; rather, our system is like a mindless zombie sucking money out of our economy and redistributing it in the service of irrational, perverse incentives that no one truly endorses.
Are drug prices rising?
Take prescription drug prices, which all of the candidates seem to agree are unconscionably high. On the surface, the prices of drugs do appear to be rising rapidly, along with the co-pays that patients shoulder at the pharmacy. What most people don’t know is that drugs actually have two different prices: a list price and a net price. The list price is like an MSRP (manufacturer suggested retail price), and is typically what the pharmacy charges for a drug.
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