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The Goodman Institute Health Blog

Pharmaceuticals Good; Price Controls Bad

Posted on August 4, 2022 by John C. Goodman

We find that during the last 20 years, profits and sales by research-based pharmaceutical companies made up 1.0% and 7.5% of total health care spending, respectively. In addition, annual sales growth contributed – 4.5% to the annual growth in total health care spending, partly due to real declines in drug spending in some years when there were increases in real health care spending. We thereafter summarize the evidence base on the impact of biopharmaceutical innovation on overall health care spending, which has been addressed by a large literature on so called cost offsets of new drugs. We find that these studies report an average cost offset from medical innovation, or total cost decrease, of $151.94 per new drug. We estimate how much recently proposed US price controls on drugs in the US would raise health care spending and find that total health care spending would increase by $50.8 billion over a 20-year period.

Tomas J. Philipson and Giuseppe Di Cera study

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For many years, our health care blog was the only free enterprise health policy blog on the internet. Then, when the NCPA closed its doors, the health blog stopped as well.

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