DRUG-PRICING MODEL UNDER ATTACK, CEI REPORT FINDS
The pharmaceutical industry's primary methods of pricing products -- through intellectual property rights and diversity pricing, which allows firms to charge higher prices to those with greater ability to pay -- are under attack, a free-market think tank concludes in a new paper opposing drug importation proposals.
Intellectual property rights and diversity pricing were much more easily enforced in the pre-internet world, where markets were geographically isolated and drug price information was difficult to acquire, said the paper released by the Washington, D.C.-based Competitive Enterprise Institute (CEI).
In terms of intellectual property rights, a firm's efforts to force a foreign country to absorb higher costs may lead to the seizure of the firm's intellectual property, according to CEI. "Worse yet, the generic product produced in that country [using seized intellectual property] may then find its way into the United States and elsewhere," the paper added.
Moreover, today's cyber-economy makes diversity pricing much more difficult, CEI noted. "When the product can be economically transferred from one jurisdiction to another, when the knowledge of the prices paid elsewhere become readily available, diversity pricing is much harder to maintain," said the paper. "Low-priced sales in one jurisdiction lead to political pressures to universalize these lower prices elsewhere."
Meanwhile, U.S. politicians continue to push for allowing the importation of lower-priced prescription drugs. CEI makes the long-held argument that the importation of prescription drugs, in fact, imports price controls. "In the short-term they may produce a drop in prices, but they also destroy the incentives to produce more goods," according to the paper's authors.
A copy of the paper, "The Drug Reimportation Ban: A Less-Than-Perfect Solution That Beats All the Rest," is available online at http://www.cei.org/pdf/4343.pdf (http://www.cei.org/pdf/4343.pdf).