Sample Solution

US government (i.e. Medicare, Medicaid, Tricare, etc.) is the largest buyer of prescription drugs in the world, yet they have no say in the pricing of drugs.  Our government also generally issues funds to these pharmaceutical companies for research and development, with substantial investments in the basic science that leads to new drug discoveries. For example, the federal government spent $484 million developing the cancer drug Taxol, which was then taken under agreement with Bristol-Myers Squibb in 1993.  In 10 years, the manufacturer earned $9 billion in revenue and paid the federal government $35 million in royalties (article). Although 75% of new innovative drugs are supported by federal funding, most consumers and payers are unable to afford these medications due to the unreasonable prices. (article) We propose for the United States government to have the ability to establish delegated sectors to negotiate drug prices.  By giving the government some power in dictating cost, this could substantially lower introductory prices, annual costs, and which may reduce out-of-pocket costs for patients. For example, the government may establish a drug’s ceiling price similar to the Federal Ceiling Price program used by the Department of Veteran Affairs. They may also begin use of reference pricing, thus permitting the Department of Health and Human Services to set a benchmark price for clinically comparable drugs that are interchangeable. Though these changes may produce more cost-effective medication, a drawback may be the lack of market diversity. Rather than having one pharmaceutical company dictating the price, the federal government is dictating the price thus creating a lack of competition. Having one body dictate everything may create tensions between pharmaceutical companies and the government; thus, change might not be made at all.
Next, pharmaceutical companies spend a substantial amount of money on marketing rather than research.  At this point, we are unaware of the exact cost breakdown of pharmaceutical company revenue. There is no requirement for documentation to show the difference between profits, money used for marketing, and money used for research.  Often times, marketing costs are categorized into research funds. By enforcing transparency, we may have better insight into the way drug prices are set and can determine whether set prices are justified. For the past 20 years, leading drug companies earned more than 70% of their sales from products they did not develop.  More transparency with prices and clinical outcomes would allow physicians, patients, and payers to understand the true value of a treatment. Ultimately, transparency is about ensuring patients have access to the drugs they need, and creating a sustainable, vibrant, and innovative healthcare system for everyone. However as with our previous proposal, we took into consideration potential drawbacks to having drug pricing transparency.  If we become stricter with the way finances are reported, pharmaceutical companies may in turn resort to increasing drug prices, leading