Suggestions to control prescription drug prices include re-importing medications from Canada or for the government to implement price-capping on expensive pharmaceuticals. For nursing and health care leaders to make informed decisions about this issue, it is important to understand the current role of government in health care as well as the economic issues related to the prescription drug market. To meet that objective, the current role of government in the health care system, the market forces involved in the prescription drug industry, and possible outcomes from allowing the re-importation of medications from Canada are examined http://findarticles.com/p/articles/mi_m0FSW/is_6_23/ai_n17211609/pg_3?tag=content;col1.
The Goverment is working on other health care outlets when it comes to buying and producing prescription drugs. Relevant to prescription drugs are patent protection laws that provide a government sanctioned limitation on competition through a legalized monopoly. Pharmaceutical companies that develop new drugs can apply for the same patent protections available to other industries; just as a computer chip manufacturer can patent a new chip design, drug companies register new medications in an effort to protect investments in research and development. This legal monopoly creates implications that not only affect the drug market, but also influence the entire health care industry and have recently begun to play an increasingly important role in government policymaking.
Having received patent protection for a certain medication, the company has the ability to set its own price; without competition, there is no downward pressure on the price from other potential drug suppliers. The monopoly power gained from patent protection provides incentive for drug companies to invest the large amount of capital needed for R&D by allowing them to earn more than what would be the result from a more competitive market. Without patent protection, other companies would copy the drug formulation at a cost much less than the initial outlays of R&D by the original firm. Companies seeking to earn a profit from entering the market for this medication would start producing the drug and the resulting competition would drive the market to a more competitive outcome where the market, instead of an individual company, determines the price. In this scenario, where one company incurs large fixed costs through R&D while other companies have minimal fixed costs, there are few incentives to develop new, innovative drugs.
In contrast, generic medications (those not protected by patents) have the potential of being produced by any pharmaceutical firm that believes it may earn profits in the market. These firms do not have the outlay of R&D involved in creating a new medication, but only face the costs associated with reproducing and marketing a proven medication. The companies producing generic equivalents have a much lower average cost and can therefore still make a profit while offering a lower-priced product to consumers. When a drug's patent expires and generic substitutes appear on the market, economic theory predicts that there should be a decrease in the price of the medication as long as other factors, such as product demand, do not change.
In review, the high costs of prescription medications derive from market forces as well as government intervention. Patented medications benefit from a government sanctioned monopoly and the producers of these medications are able to set prices where they believe profit potential will be greatest without facing lower prices from competitors. In this way, they have the opportunity to earn enough revenue to cover the fixed R&D costs as well as the costs of producing and marketing the medication. Since a single company will market a patented drug, it will face the entire market demand curve; while holding other factors constant, increasing demand for a product will increase the price. Companies may increase revenue and profit potential by aggressively marketing to likely users of the medication and to physicians who will prescribe them. And since firms are aware that patent protection is for a limited amount of time, they will likely attempt to establish market share and recover R&D costs before generic medications are available to compete in the market. However, without the incentives provided by the initial patent protection, a company that believes that it cannot cover its costs and earn a profit will not produce new, innovative products which may potentially improve the quality of life for consumers.
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