The US Pharmaceutical Issue Through an Economic Lens

According to Cassia Peralta, MBA from Wharton’s Magazine, the US company Questcor had raised the price of one vial of Acthar gel from 40 to 23,000 dollars over the course of a few years near 2020. This occurrence had caused much controversy and outrage among US citizens regarding their healthcare system. For many decades, the pharmaceutical market has become increasingly important to the global healthcare industry, being responsible for the production and distribution of crucial life-saving medications that people need. However, in the United States specifically, the structure and function of its economy and its influences on medication prices has been very problematic. Out of all the countries in the world, the United States experiences the issue of the highest prices on medications. In fact, “health care spending is already more than one-fifth of the U.S. economy and larger than the entire GDP of France” and “nonstop exploitation of this system” and pharmaceutical “price-hike strategies could have detrimental long-term effects to the health care delivery model in the U.S.” (Peralta). Oftentimes, major well-known companies such as Pfizer and Ozempic are responsible for these sharp price hikes on their drugs (Lupkin). Since the pharmaceutical sector occupies a significant portion of the US economy, it’s understandable that skyrocketing drug prices stem from economic mechanisms that have been ingrained in the nation for a long time. Thus, the question arises: to what extent does the United States economy influence pharmaceutical price hikes on drugs? 

In general, a nation’s economic system categorizes either as capitalist or socialist (University of Minnesota). Of these two types, the United States economy follows capitalism, which emphasizes private ownership and encourages personal profit. A competitive environment is fostered among businesses and companies, who are motivated to generate as much profit as they possibly can. This then results in increased wealth in the market overall, which contributes to the prosperity of the country’s economy. However, as Peralta mentions, the main drawback to capitalism is that it discourages government intervention, thus leading to one or two companies being able to drastically outcompete its market. The lack of government intervention seamlessly translates to the pharmaceutical industry as well, where big companies are able to set exorbitant prices unchecked. Yet capitalism may not be the sole culprit to excessive drug price hikes, as Lingzhi Brian Fang from Fudan University argues. Most of the time the supply of medications in the pharmaceutical market is dwarfed compared to the demand for them, since supply and demand have an inverse relationship (Fang). As supply of the drug in question decreases, its demand from US citizens tends to increase.  Therefore, to meet the high demand pharmaceutical companies will increase production, but augment the price of the medication to ensure continuation of profit (as is the main goal of capitalism). New York Times journalist Christina Jewett agrees with the concept introduced by Fang, since the United States is clearly exemplifying the interactions between supply and cost. Jewett states that the US is currently experiencing a shortage in the supply of drugs “approaching record levels”, with their costs simultaneously escalating. Furthermore, she explains that this is mainly due to interruptions in the supply chain. Thus, Peralta, Fang, and Jewett highlight that a major factor of US drug price hikes is the interdependent interactions between supply, demand, and cost contextualized by a capitalist economic structure. 

In the US capitalist economy, once companies have surpassed their competitors and have attained a dominant position in the pharmaceutical industry, they’re able to exploit policies to benefit in terms of profit. According to Giovanni Dosi, Institute of Economics, when a company discovers or invents a novel medication/drug, they obtain a patent. A patent provides its owner with exclusive rights to an invention, prohibiting others from imitating it without acknowledging the owner. Although patents are necessary for the protection of intellectual property and pharmaceutical companies heavily rely on them, they are also inclined to thoroughly abuse them. Pragya Kakani, Harvard University, supports Dosi’s insight, explaining that oftentimes companies take advantage of their patents by monopolizing their drug. That is, a company can fix an unreasonably high cost on the drug without any competition and still yield profits since patients have no choice but to purchase the expensive drug only that one company sells. The World Health Organization (WHO) also asserts that companies are unfairly abusing patents and holding monopolies, contributing to Kakani’s perspective. Moreover, the WHO emphasizes that government intervention is crucial for mitigating exploitative monopolies that pharmaceutical companies use. Nonetheless, government involvement isn’t as feasible for a country like the United States, where its capitalistic structure, as Peralta had earlier explained, inhibits it. Hence, big companies utilizing the power of the patent to create monopolies is another influential factor lifting drug prices higher.

Sydney Lupkin, Pharmaceuticals Correspondent for NPR, justifies big companies’ actions by explaining drug price hikes may also result from the need for funding of new innovation, contradicting Peralta and Kakani’s views. Nur Sufiza Ahmad, Post Doctoral Researcher from University of Malaysia, elaborates on Lupkin’s standpoint by highlighting that the global pharmaceutical market had spent a total of 1.2 trillion dollars in 2018 on medications, with a considerable portion being dedicated to funding innovative research. Ahmad then proceeds to imply that the global market spending has only been increasing ever since. Additionally, Lupkin provides a key statement from the corporation Pfizer, which states its main objective of raising costs is to fund opportunities that pursue initiatives to create novel medicines. Thus, Lupkin and Ahmad counter Kakani’s viewpoint by demonstrating that not every pharmaceutical company in the market establishes high drug costs with the intent of monopolization. Instead, some corporations may be attempting to effectively obtain funding for medications with potential to treat various dangerous diseases, such as chemotherapy dosage for cancer. As indicated by Jewett, one time at a hospital, patient Mr. Dwars urgently needed to receive his “final four doses of chemotherapy”, however his doctor unfortunately informed him he “didn't make the cut of those given priority for the treatment”. Consequently, Jewett emphasizes the severe implications of drug shortages and price hikes that can all be traced back to a lack of funding for research. She conveys the sheer tangibility of the pharmaceutical issue and, on a humanitarian basis, implies the suffering that thousands of other patients in the United States undergo due to the inaccessibility and unaffordability of expensive medications.

The US pharmaceutical problem is certainly of highly concern due to its severity and its strong roots to the inflexible economic structure and mechanisms of the country. And so, it’s an issue that needs to be properly addressed. According to William V Padula, PhD, one possible approach is for the government to intervene by passing laws and regulations to curb down the prices on pharmaceutical drugs, increasing their affordability to citizens. However, this isn’t quite plausible given the capitalistic economy of the United States. And, as Jewett argues, drastically cutting down prices may not always be optimal since it frequently downgrades the quality of the medication. An alternative solution, as suggested by the WHO and Ahmad, is drug price transparency. It’s compatible with the US capitalistic anatomy and is viable with Jewett’s argument. Transparency in the cost of medication doesn’t necessarily mean sharp price cuts, but essentially is “readily available information on the price of pharmaceutical drugs to either authorities or consumers” (Ahmad). It enables US citizens to understand and be aware of where the problem specifically lies, and cooperate with corporations to reach a compromise on a drug price that’s considerate of both patient affordability and pharmaceutical company profit. Price transparency certainly is pivotal towards a future where a more mutualistic relationship can exist between patients and US pharmaceutical companies.

Works Cited

Ahmad, Nur Sufzia, et al. “Drug Price Transparency Initiative: A Scoping Review.” Science Direct, 2020, www.sciencedirect.com/science/article/abs/pii/S1551741119306916?via%3Dihub. Accessed 2 February 2025.

Dosi, Giovanni, et al. “Big Pharma and Monopoly Capitalism: A Long-Term View.” Science Direct, 2023, www.sciencedirect.com/science/article/pii/S0954349X23000048. Accessed 17 February 2025.

Fang, Lingzhi Brian, et al. "What Condition Leads to an Unreasonable Pharmaceutical Price? Impact Research on the Effect of Medical Service Provision on Pharmaceutical Price Regulation Based on Fuss-Set QCA." PLoS ONE, vol. 18, no. 4, 13 Apr 2023, p. e0284129. Gale In Context: Opposing Viewpoints, dx.doi.org.lapr1.idm.oclc.org/10.1371/journal.pone.0284129. Accessed 28 January 2025.

Jewett, Christina. “Drug Shortages Near an All-Time High, Leading to Rationing.” New York Times, 17 May 2023, www.nytimes.com/2023/05/17/health/drug-shortages-cancer.html. Accessed 24 February 2025.

Kakani, Pragya, et al. “Rebates in the Pharmaceutical Industry: Evidence from Medicines Sold in Retail Pharmacies in the U.S.” National Bureau of Economic Research, 2020, www.nber.org/papers/w26846. Accessed 2 February 2025.

Lupkin, Sydney. “Prices Rise for Hundreds of Drugs This Year : Shots - Health News.” NPR, 14 Jan 2025, www.npr.org/sections/shots-health-news/2025/01/14/nx-s1-5250174/drug-prices-rise-drugmakers. Accessed 2 February 2025.

Padula, William V. “State and Federal Policy Solutions to Rising Drug Prices in the US.” Hein Online, 2019, heinonline.org/HOL/LandingPage?handle=hein.journals%2Fhclwpo22&div=5&id=&page=. Accessed 2 February 2025.

Peralta, Cassia. “An End to Overpricing? What Big Pharma Price Hikes Mean for Health Care.” Wharton Magazine, 2017, magazine.wharton.upenn.edu/digital/an-end-to-overpricing-what-big-pharma-price-hikes-mean-for-health-care/. Accessed 2 February 2025.

University of Minnesota. “Types of Economic Systems – Introduction to Sociology: Understanding and Changing the Social World.” Pressbooks @ Howard Community College, 2016, pressbooks.howardcc.edu/soci101/chapter/13-2-types-of-economic-systems/. Accessed 24 February 2025.