Document Type

Honors Paper

Advisor

Yong Jin Park

Publication Date

2020

Abstract

The issue of high drug prices in the United States is something that could go on forever due to the industry’s profit maximizing design. Given the current time with the COVID-19 pandemic, many changes will be made to what Americans have considered a “normal lifestyle” for the past century. This will involve policy changes across many industries to keep Americans safe throughout the duration of this disease, and through any other virus to come. Hopefully, significant changes will be made in the pharmaceutical industry. This industry is unlike any other industry in the world, as all major players: hospitals, insurance companies, the government, middlemen, and pharmaceutical manufacturers act as profit maximizers. This paper gives an insight on how each of these players contribute to pricing pharmaceuticals and how the negotiation process works. Once a basic understanding of this complex industry is achieved, I will explain why and how pharmaceutical manufacturers can charge high prices for their products, even though they are financially burdening many patients. Excessive initial list prices and overprescribing are big issues in the industry, but the biggest problem I found is the ability to increase the price of a drug consistently throughout the duration of its patent, which could be up to 20 years. Now would be the perfect time to make significant adjustments to this pricing system that works in patients’ worst interest, but if regulators and law makers choose to do so is a different story.

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The views expressed in this paper are solely those of the author.