January 08, 2008

You'd better sit down. The Washington Post offers the following headline today: "Medicare Helps Push Drug Spending Up."

No kidding. When patients get a subsidy, they take advantage of it! And not just any subsidy: a federal subsidy defined as a budget entitlement for the purchase of prescription drugs under Medicare Part D.

Down around paragraph 2,938 it is noted as well that "The primary driver of the higher drug spending was increased consumption, not price increases..." This is not very surprising---notwithstanding the predictions of the usual suspects that prices would rise in the absence of federal negotiations of prices---in that Part D has expanded the market, for better or worse, and thus allowed the pharmaceutical producers to exploit the sizeable scale economies that characterize the cost conditions under which most drugs are produced.

And so we have some indirect but important evidence that an expansion of drug advertising would have a similar salutary effect on prices, again contrary to the simple-minded arguments of many that such advertising costs money, and so obviously it must drive prices up. How is it possible for some to get everything wrong? Good question.

Posted by Benjamin Zycher at January 8, 2008 04:46 PM

Comments

Post a comment