Pharmaceuticals in U. S. health care: determinants of quantity and price

摘要

The U.S. pharmaceutical industry has again become the focus of considerable public attention and controversy, in part because of its highly visible sales growth, averaging around 12-13 percent annually over the last 15 years, along with its apparent high profitability. To understand the economics underlying the pharmaceutical industry, the traditional microeconomic distinctions between short-, medium- and long-run costs turn out to be critical, as does the distinction between accounting and economic costs. Although the long-run supply of new pharmaceuticals depends critically on research and development efforts, in the short run, R&D costs are largely sunk or fixed, while the marginal costs of manufacturing another tablet of a developed drug are typically very small. For patent-protected branded pharmaceuticals, in most cases, prices are several times greater than short-run marginal production costs, thereby making short-run gross profit margin accounting measures for pharmaceuticals among the highest in all U.S. industries. These different short- and long-run cost perspectives help one understand why the pharmaceutical industry is particularly vulnerable to public policies involving pricing. Although the conflict between static efficiency (price new drugs low, near short-run marginal cost) versus dynamic efficiency (price new drugs high, maintain incentives for innovation) is a deep and enduring one, as the costs of bringing new drugs to market have increased sharply in recent years, this tradeoff is becoming more severe. The resolution of this static versus dynamic efficiency conflict is likely the single most important issue facing the pharmaceutical industry over the next decade.