Should we change the way prescription drugs are priced?

Patricia Danzon • OCTOBER 18, 2016

Patricia Danzon of The Wharton School at the University of Pennsylvania discusses various models for prescription drug pricing in the United States. According to Danzon, drug prices traditionally have been controlled by methods such as tiered cost sharing. That approach tends to work well in areas such as statins and antiulcerants, where there are multiple competing drugs and prices remain low, but not as well in areas such as cancer care, where drugs are hyper-specialized and can prices can be raised very high. As an alternative to government-set price controls, Danzon proposes a value-based model in which drug efficacy would be assessed by an independent agency and then each payer would determine its threshold of willingness to pay for that drug. Danzon argues that under this model, patients would benefit from lower prices and manufacturers would still be rewarded for innovation.

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