THE EFFECTS OF A GOVERNMENT-REGULATED PRICE MAXIMUM ON THE

AFFORDABILITY OF LIFE-SAVING PRESCRIPTION DRUGS

Ella Schmidt
Troy High School
AP Seminar
Word Count: 2199
 THE EFFECTS OF A GOVERNMENT-REGULATED PRICE MAXIMUM ON THE
AFFORDABILITY OF LIFE-SAVING PRESCRIPTION DRUGS

Prescription medications such as insulin, OPDIVA, and Keytruda have been used to treat

life-threatening illnesses such as diabetes, cancer, and various genetic disorders. However, in

recent years, the costs of these drugs have soared beyond the point of affordability. A 2019 study

found that a single vial of insulin (which lasts between 1 and 2 weeks) costs over 300 dollars

(“Drug Prices”). Carol Hammond, a 72-year-old diabetic from North Philadelphia, relies on

Social Security funds to pay for insulin because her individual earnings are not enough. “[The

prices are] out of control,” she says. “My rent isn’t too bad, but after paying for insulin, I don’t

have much left...” (“Insulin Price”). According to a journal from the American Society of

Hematology, the prices of these vital medications should follow the doctrine of Justum Pretium,

or ‘just price’. In other words, by moral necessity, the price of a product must reflect its worth

(Abboud, et al.). This would favor the modest pricing of items such as bread during a famine, the

polio vaccine during an outbreak, or in this case, life-saving medications.

To the contrary, others, such as the faculty of law at McGill University, contend that

“existing patents...make medicines more expensive and increase the difficulty of

creating...mechanisms through which to deliver [medication]”, thus increasing the value and

overall price of the drugs (Gold, et al.). Such discourse begs the question: In a free market,

should the American government be able to limit the prices of live-saving drugs and treatments?

Careful examination through ethical, economic, and legal stances leads to the solution of
imposing a government-regulated price maximum on the medications that are used to treat

deadly diseases.

Injustices like this have been prevalent in American society throughout history. Groups

of people, such as African Americans in the 1950s, Muslim-American citizens in the early

2000s, and now, clinically ill patients in need of medication, have been controlled by a group of

oppressors. Although it is ethically unjust, these oppressors can continue to exploit these

individuals, especially when they have no way to retaliate. Because “injustice anywhere is a

threat to justice everywhere”, authorities should be urged to correct these inequalities (King).

Moral obligations should not be taken lightly while deliberating this issue. The benefits

of a treatment, in terms of the increase in longevity and quality of life, must be acquirable at a

reasonable price. In most cases, however, patients are coerced into buying medications that lack

noticeable benefits. For example, OPDIVO, a popular treatment for lung cancer, “adds an

average of 3.2 months of life to lung cancer patients and costs $150,000” (Emanuel). With drug-

resistant diseases becoming a commonality, Dan W. Brock, a Ph.D. in the Department of Global

Health and Social Medicine at Harvard Medical School, affirms that “many new cancer

treatments...in particular, many new cancer drugs, fail to meet this standard for value” (Brock;

Holohan, et al.). For high medicine costs to be considered ethically sound, the drugs themselves

must be improved enough so that the benefits are worth their extortionate prices.

Both pharmaceutical companies and doctors have a principled duty to inform patients

about less expensive alternatives to the medications they currently take. Because patients are in

dire need of these medications, they are often ill-informed about cheaper alternatives—if any

exist—for their needs. Pharmaceutical corporations will often advertise more expensive

medications as ‘miracle’ drugs while discouraging patients from purchasing more economically
reasonable options. This “place[s] these drugs on specialty tiers that offer[s] no leverage for

negotiating discounts and impl[ies] often unaffordable cost sharing for patients...” writes Patricia

M. Danzon, a Ph.D. in the Health Care Management Department in The Wharton School of the

University of Pennsylvania (Danzon and Taylor).

Even when doctors provide free samples and help patients find cheaper alternatives, the

prices of some essential drugs remain unattainable. Insulin, for example, is produced rather

inexpensively by inserting the human insulin gene into bacterial cells and allowing them to

replicate. This technique of using recombinant DNA technology should have lowered the price

of insulin starting in the 1970s (Keen, et al.). However, according to Mark Schutta, an

endocrinologist at the University of Pennsylvania School of Medicine, the “greed” of

pharmaceutical companies prevents any price relief (“Insulin Price”).

In a free market economy, such as in the United States, consumers dictate prices by how

much they are willing to pay for a product or service. In this way, “individuals engage in

transactions voluntarily, only when all parties to the transactions agree” (Holcombe).

Competition between sellers of the same or similar items keeps prices in check. But in the case

of life-saving medications, due to the extensive number of patents and licenses, the competition

necessary to lower the prices of these essential drugs is nonexistent. The Faculty of Law at

McGill University agree that “the patent system...has resulted in an innovation system

characterized by a dramatic increase in health care costs and decreasing...levels of innovation,

especially by dollar spent” (Gold, et al.).

Because many chronically ill individuals need medication in order to survive, they must

purchase these drugs regardless of the price. As stated in a report written by Harvard College’s

Bureau of Economic Research, “purchasers must value the prescription at a relatively high level,
and...pharmacies can exploit this fact by charging...customers higher prescription prices”

(Aitken, et al.). Martin Luther King Jr. details in his “Letter from Birmingham Jail” that the best

way to “bring pressure to bear on the merchants for the needed change” is to impose a “strong

economic withdrawal program” (King). However, such a boycott is not possible for individuals

who rely on the retailer’s product or service to survive. This allows pharmaceutical corporations

to turn a ‘blind-eye’ to the situation “and pretend [they] just do[n’t] see” the subjugation of these

people (Dylan). Because patients cannot simply walk away from a sale if the prices are not fair,

the typical bartering of a free market economy does not exist with these drugs. Thus, the lack

competition and the absence of fair negotiation are both reasons why the life-saving medication

market does not coincide with a free market structure.

This lack of fair pricing allows pharmaceutical corporations to continue selling their

drugs for exorbitant prices. In fact, Ezekiel Emanuel, Oncologist and Vice Provost at the

University of Pennsylvania, found that “the price or cancer drugs like Yervoy, OPDIVO, and

Keytruda routinely exceeds $120,000 a year. Some other specialty drugs [such as] Cerezyme[, a

drug used to treat] Gaucher disease costs about $300,000 per year of life” (Emanuel). In 2018,

the United States Census Bureau reported that the median income of an American citizen is

$61,372 (Rothbaum). With drug prices regularly surpassing twice the income of the average

American, ill individuals simply cannot afford to continue treatments without also incurring an

abundance of debt.

Some argue that the price of these medications must be high so pharmaceutical

companies “have incentives to develop new drugs” (Danzon, et al.). Essentially, this claims that

if these corporations are not making a large enough profit, there will be little drive to innovate

better medicine. However, recent studies have shown that “pharmaceutical companies spend
almost twice as much [money] on marketing than on research” (Gold, et al.). Thus, the research

and development costs for new drugs are relatively low in comparison to marketing

expenditures. Corporate profits can therefore be maintained by more efficient marketing rather

than by cutting innovation-related costs. Further, innovation is necessary to bring new products

to the market and increase profits over time, so the level of innovation is not threatened by a

more equitable pricing of these drugs.

With approximately 82 million Americans suffering from life-threatening illnesses

“ranging from...cancer to chronic conditions [such as] diabetes...or heart disease”, a large

percentage of the United States' population rely on some form of medication to survive (“At

Risk”). However, the American government has done surprisingly little to combat the ever-rising

prices of these drugs. An academic journal published by the Massachusetts Medical Society

states that “in our current system, patient’s health-related social needs frequently remain

undetected and unaddressed”. More effective laws and programs, if implemented, could reduce

"preventable hospitalizations...[by] 500,000 [visits] per year” (Alley, et al.).

Medicaid, considered to be the most influential program in regards to drug pricing,

provides financial relief on health expenses for “eligible low-income adults, children, pregnant

women, elderly adults, and people with disabilities” (“Medicaid”). While some researchers, such

as Duke University’s Lawrence R. Jacobs and Timothy Callaghan, believe not only that

Medicaid is effectively increasing the affordability of these necessary drugs, but also that it

should be expanded, others disagree (Jacobs and Callaghan). However, because Medicaid

actively encourages the sales of drugs with “the lowest prices on the market”, drug companies

are discouraged “from experimenting with other payers on lower price arrangements, knowing

that they will most likely have to give the same deal to Medicaid” (Emanuel).
 On March 23, 2010, Congress passed the Affordable Care Act. One of the main

objectives of this act was to expand the Medicaid program to include more people of a lower

income. This made it optional for state governments to extend their Medicaid programs “to

include all adults with incomes that are at or below 138% of the federal poverty level”

(Blumenthal). Thus, both the Medicaid and Affordable Care Act programs left a multitude of

American citizens without means to pay for their medications. In addition, Dawn E. Alley,

Ph.D., Chisara N. Asomugha, M.D., Patrick H. Conway, M.D., and Darshak M. Sanghavi, M.D.

contend that there is no concrete evidence to support the claim that “broad-based investments

improve health care utilization and costs” and “we need to develop and test a [new] template”

that allows for preferable results (Alley, et al.).

The American government is rendered with several means of combating this issue.

Preferably, the government can impose a regulated price cap of these life-saving drugs. By

following suit of countries such as Switzerland and Australia, who have had success in

implementing this method, the United States can “establish a maximum allowable price for the

drug, but up to that point, companies can decide what to charge.” (Emanuel). These caps would

be decided by a third-party organization based on the value of the drug, therefore imposing a

‘ceiling’ to eradicate unsustainable prices of these medications. Combined with more effective

marketing, pharmaceutical corporations can continue to earn profits like their original amounts.

In addition, this will ensure that the cost of medication will never exceed past the level of

affordability, fulfilling all ethical, economic, and legislative requirements for such a proposal.

For these reasons, price maximums offer the most optimal solution for both the consumers of

these drugs and the companies that produce them.

 To a lesser extent, the duration of patents involving life-saving drugs could be shortened.

A patent term currently lasts twenty years from the application date, though the average time it

takes for the patent to be issued is around three years. Thus, the average effective patent term

lasts approximately seventeen years (Schmidt, et al.). Shortening the duration of these patents

would allow pharmaceutical companies to engage in price-lowering competition sooner.

However, this must be implemented sparingly, as it may ultimately lead to “an industry...facing

unstainable cost increases and fewer new products” (Gold, et al.). These corporations might seek

to earn a similar amount of revenue within this shortened time frame, resulting in even higher

prices. Because of this, reducing patent terms by itself is unlikely to significantly address this

issue. Thus, the durations of patents should only be shortened in combination with a government-

implemented policy of prescription drug price control.

In addition to the aforementioned solutions, “patients, prescribers, payers, and policy

makers” could benefit from an increased education about cheaper alternatives to the medications

they currently use (Kesselheim). An increased awareness of these less expensive prescription

drugs would enable patients, medical professionals, and pharmacists to work together to make an

educated decision about which medications should be purchased. When used along with a price

maximum and shortened patent terms, this could lead to the increased purchase of generic-brand

drugs and consequently escalate competition between pharmaceutical companies, to the benefit

of the consumers.

The current expense of life-saving prescription drugs has lamentable repercussions on the

health of people with deadly diseases. Because of this, many ill individuals are burdened with

costly medical bills, debt, and worsening symptoms. The price of these drugs should be

“restrained by ethical considerations” because these products “are essential to life” (Abboud, et
al). Insulin, for example, is a necessary drug for an individual who suffers from diabetes. Moral

obligations suggest that the price of a drug such as this should be affordable to the people who

rely upon it. Moreover, the economic market of these prescription medications does not reflect

that of a free structure and therefore prices should not be determined as such. In addition, the

government presently lacks strong legislation required to correct this injustice. By implementing

a regulated price maximum of these drugs, the American government can protect these

vulnerable citizens without causing an immense decrease in the revenue of pharmaceutical

corporations. However, in order to completely address the complexity of the issue at hand, a

combination of all previously mentioned solutions and more must be utilized.

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