Lessons for the United States from Pharmaceutical Regulation Abroad

A American politicians from across the ideological spectrum have found a merican politicians from across the ideological spectrum have found a rare point of agreement: US drug prices are too high, and the government rare point of agreement: US drug prices are too high, and the government should do something about it. Figure 1 presents the results of a study of drug should do something about it. Figure 1 presents the results of a study of drug prices in different countries, which finds that overall US pharmaceutical prices, and prices in different countries, which finds that overall US pharmaceutical prices, and particularly prices of on-patent drugs, are several times higher than those in other particularly prices of on-patent drugs, are several times higher than those in other high-income countries such as France, Germany, Japan, and the United Kingdom high-income countries such as France, Germany, Japan, and the United Kingdom (Mulcahy, Schwam, and Lovejoy 2024). Such comparisons bolster the arguments of (Mulcahy, Schwam, and Lovejoy 2024). Such comparisons bolster the arguments of those advocating price controls or other government interventions in the United those advocating price controls or other government interventions in the United States. States.Why are policies around drug prices necessary? In other words, why do most developed countries rarely leave drug pricing to "the market" without government intervention? In all countries, pharmaceutical markets operate under conditions that differ substantially from the assumptions behind a competitive market that would equilibrate supply and demand based on price. These conditions reflect information problems, the specificities of healthcare markets, and the cost structure of drug development.First, pharmaceuticals are "credence goods": not only is their quality difficult for consumers to determine prior to consumption, but their effects are challenging to identify even after consumption. Regulation of entry, administered by the US Food and Drug Administration (FDA) and similar regulators like the European Medicines Agency (EMA), aims to reduce this information asymmetry. Consumers can be Lessons for the United States from Pharmaceutical Regulation Abroad