Regulation vs. Regulation on Medicine Prices
In a recent piece on the negotiations for a Trans‐Pacific Partnership (TPP), economist Joseph Stiglitz was critical of a provision that would prevent governments from using regulation to keep pharmaceutical prices lower. He argued:
The second strategy [of the TPP] is to undermine government regulation of drug prices. More competition is not the only way to keep down the prices of essential goods and services. Governments can also directly restrain prices through law, or effectively restrain them by denying reimbursement to patients for “overpriced” drugs — thus encouraging companies to bring down their prices to approved levels. These regulatory approaches are especially important in markets where competition is limited, as it is in the drug market. If the United States Trade Representative gets its way, the T.P.P. will limit the ability of partner countries to restrict prices. And the pharmaceutical companies surely hope the “standard” they help set in this agreement will become global — for example, by becoming the starting point for United States negotiations with the European Union over the same issues.
So the way Stiglitz tells it, government regulation — in the form of government influence over pricing — could help bring down medicine prices, but the TPP looks like it will constrain this regulation.
What’s missing from his story, however, is how the prices got so high in the first place. The prices are high because of, you guessed it, regulation! This regulation takes the form of 20 year monopolies granted by the government, also known as patents. Now perhaps we need patents to promote innovation, although I’m sympathetic to those who argue that patent terms should be more flexible. But regardless, when someone proposes that Regulation X is needed to counteract the negative effects of Regulation Y, I start to question things. If Regulation Y is such a problem, perhaps we simply need to rethink and revise Regulation Y, rather than add a brand new Regulation X, in the hopes that multiple, conflicting regulations will balance each other out and leave us no worse off than where we started.
