Prescription drug prices - not as simple as portrayed by the politicians

Here is a link to a paper by Frank, Hicks, and Berndt titled "The Price to Consumers of Generic Pharmaceuticals: https://www.nber.org/papers/w26120.pdfBeyond the Headlines".

The prices of generics declined substantially from 2008 to 2016.  This is to be expected in a competitive market.

The media and politicians focus on the increasing prices of non-generic pharmaceuticals.  Part of the reason for the high prices of new drugs include excessive Government regulation, the liability risk of greedy lawyers, and the incentives for many medical players to push new drugs vs. old ones - regardless of a clear cost benefit advantage.

If you don't like the high cost of a new drug that might benefit you, why not opt for an older drug available as a generic that may be just as good or almost as good?  Do  you really need Repatha?  why not atorvastatin?  Do you really need Lisinopril?  Why not Telmisartan?

Many "solutions" to the "high cost of drugs" proposed by the media and politicians would reduce the rate of innovation.  That will cause substantial excess deaths going forward.  On the other hand, John Cochrane's blog entries provide good ideas about how to reduce drug costs and health care costs generally.

Here are some excerpts from the paper.
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Context: Generic drug prices have received a great deal of attention in the past few years.
Congressional committees, executive agencies and private organizations have all
conducted investigations into the pricing patterns for generic drugs. Price spikes for
several specific generic drugs have also been widely reported in the media.
Methods: We construct two Laspeyres chained price indexes that capture prices of
generic prescription drugs paid by consumers and private health plans. The first reflects
direct out of pocket payments made by the consumer to a pharmacy for dispensing a
generic prescription drug (“direct out-of-pocket CPI”, and the second the total price
received by the pharmacy (“total CPI”) comprised of the direct out-of-pocket payment
from the consumer plus the price paid to the dispensing pharmacy by the insurer on
behalf of the consumer. 

Findings: The chained direct out-of-pocket CPI we construct shows a roughly 50%
decline for generic prescription drugs between 2007 and 2016. In addition, between 2007
and 2016 the total CPI for generic prescription drugs fell by nearly 80%.
Conclusions: The U.S. generic prescription pharmaceutical market continues to drive
overall prices downward, although pharmacy price declines are not fully passed through
to consumers. Our evidence suggests that overall affordability is not the main problem in
the generic drug market.

The eye-catching increases in certain generic drug products have drawn attention
to generic drugs as a potential source of the most recent rapid rise in spending on
prescription drugs. Even though the 1,000% increases and more for drugs that have long
lost patent protection raise important and legitimate concerns about how various
segments of the industry are functioning, as has evidence of increasing consolidation in
the prescription pharmaceuticals market, the broader data on the overall behavior of
prices in the U.S. generic prescription pharmaceutical industry paints a different picture.

The U.S. generic prescription pharmaceutical market continues to drive overall prices
downward. Thus, our evidence suggests that overall affordability is not the main issue in
the generic drug market and that this segment of the U.S. prescription drug market is not
responsible for reported growth in prices and spending for prescription drugs overall.

Concerns have been raised about whether consumers are benefiting from the price
declines because insurers and prescription benefit managers have been offering products
that increasingly shift costs from insurers to consumers. Our evidence finds that
consumers are experiencing more burdensome cost sharing and that in fact consumers
are bearing a greater share of generic drug costs, yet on balance we find that consumers
have experienced substantial overall price declines for generic drugs.

One important question raised by the differential patterns of price declines
between overall and out-of-pocket consumer prices is how the benefits of price declines
are being shared across the larger supply chain. Our CPI analysis shows that the full
amount of the declines in generic prices is not being passed through to consumers. While
a number of “back of the envelope” estimates have been made about the degree of pass- through of price reductions to consumers,9 we believe more systematic analysis of this phenomenon is needed.10 Moreover, our results also suggest a closer look at the workings
of the entire generic drug supply chain (manufacturer, wholesaler, pharmaceutical benefit
manager, insurer, and retailer) merits attention.