The news that branded drug prices skyrocketed last year is alarming. Net prices negotiated with insurers seem to have increased by 15 percent or more. In past years, increases have been considerably smaller. Alarming, but also puzzling. One might chalk this up to “greedy” drug makers but doing so raises some hard questions: Did they only just now become greedy? If not, why didn’t they raise prices this much last year? If drug makers think they can get away with exorbitant price increases today, surely they would have thought the same a year ago.
I don’t know for sure what is going on but I can offer a plausible explanation. Let’s suppose that drug makers are actually raising prices higher than is optimal in the short run. (Supposing otherwise returns us to the “why are they only greedy now?” dilemma.) One reason they might do so is if they believe there is some chance there will be drug price controls in the future. If future prices are regulated, then charging prices that are “too high” today would result in prices that are just right in the future.
The problem with this explanation is that I am unaware of any new pressure to regulate drug prices, just the same vague complaints that Washington always emits. So I am at a loss.
I know that lots of my readers are in the drug sector. The rest are drug users, in a manner of speaking. What do you think is going on?