Thoughts on The Regulation of Drug Prices

By November 13, 2006General

Lots of good stuff in the papers over the weekend. There was this piece by one Alberto Mingardi, Director of Istituto Bruno Leoni, an Italian free-market think tank entitled, “A Drug Price Path to Avoid.’ It spells out the pitfalls of drug price caps as they have played out in Italy. We already know it kills innovation, and Mingardi points out that although Italy is the 7th largest economy in the world, not one of the 50 largest pharmaceutical manufacturers is headquartered there. Why would they? It’s a place where innovation is suffocated.

He also reminds us of the effect of markets, that things are never static, that markets react to dumb legislation like this. Since the price of drugs is capped by the Italian government, guess what has happened to demand? It has skyrocketed. Since they are not at their true price but rather at a subsidized price, people consume much more — so overall health care spending has soared. Quality has suffered, too, as the Italian government has sought a reimbursement policy that favors cheaper — and often, less effective — drugs.

In any event, it’s a good free market piece which he specifically notes is a cautionary tale to the new Democrat leadership who, while well-meaning, may see their actions fall victim to a law they can’t control: The law of unintended consequences.

Join the discussion One Comment

  • Len Charlap says:

    Let’s look at the bottom line. Look at the basic measures of health, life expectency, infant mortality rate, etc. In every case, Italy does better than we do. Yet we pay over twice as much per patient as does Italy. You can substitute any wealthly developed country for Italy. If the free market is so great, why do we pay more for worse healthcare than other countries? As for drug innovation, see my letter in today’s Post.
    (for verification of these statements see