Policy options for the drug pricing conundrum

Kate Ho and Ariel Pakes
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Kate Ho: a Department of Economics , Princeton University and National Bureau for Economic Research , Princeton , NJ 08540

Proceedings of the National Academy of Sciences, 2025, vol. 122, issue 9, e2418540122

Abstract:

Current proposals aimed at reducing U.S. pharmaceutical prices would have immediate benefits (particularly for low-income and elderly populations), but could dramatically reduce firms’ investment in potentially highly welfare-improving Research and Development (R&D). The United States subsidizes the worldwide pharmaceutical market: U.S. drug prices are more than 250% of those in other Organization for Economic Co-operation and Development (OECD) countries. If each drug had a single international price across the highest-income OECD countries and total pharmaceutical firm profits were held fixed: U.S. prices would fall by half; every other country’s prices would increase (by 28 to over 300%); and R&D incentives would be maintained. We propose a potential lever for the U.S. government to influence worldwide drug pricing: access to the Medicare market.

Keywords: pharmaceutical prices; worldwide drug pricing; policies (search for similar items in EconPapers)
Date: 2025
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https://doi.org/10.1073/pnas.2418540122 (application/pdf)

Related works:
Working Paper: Policy Options for the Drug Pricing Conundrum (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:nas:journl:v:122:y:2025:p:e2418540122

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