Rising Costs of Prescription Drugs

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Rising Costs of Prescription Drugs by Mind Map: Rising Costs of Prescription Drugs

1. Taxing & Spending

1.1. Prescription drugs are almost always exempt from state sales tax (except for Illinois, which charges a reduced sales tax of 1%).

1.2. There is a fee on the sale of Branded Prescription Drugs (BPDs) to certain government programs, such as Medicare. The company pays a fee based on the gross receipts of BPD sales to the government programs.

1.3. Taxation as an incentive

1.3.1. The new tax law passed in 2017, which saved drug companies billions of dollars, was touted as a way for the companies to lower drug prices. However, by mid-2019, 17% more drugs than a year earlier had increased in price at an average rate of 10.5%, more than 5 times inflation.

1.3.2. Other tax incentives also do not appear to be helping to lower prices either. For example, the companies are able to deduct advertising expenses. Having this allowance also has not had an impact on lowering drug prices. However, some say removing this deduction violates neutrality to treat this expense as any different from other business expenses.

2. Regulation & Deregulation

2.1. Incentives

2.1.1. The government may seek to incentivize the drug companies to limit price increases. A potential solution has been proposed that would set a cap on list price increases for drugs under Medicare.

2.2. Price Controls

2.2.1. The rapid increases in the prices of prescription drugs has led some to propose policies similar to price controls, such as capping Medicare drug prices to the rate of inflation or even setting outright limits on the prices.

2.3. Competition Problems

2.3.1. Not many drug companies offer comparable medications and sometimes only 1 company offers a certain drug. This allows the companies to charge higher prices for the medications.

2.4. Information Problems

2.4.1. Determining the price of medications can sometimes be difficult for consumers. One potential policy solution that has been suggested is making the companies disclose the price in their advertisements.