21st Century Cures Legislation – Could it reduce drug prices?

Shifting Supply

The 21st Century Cures Act aims to facilitate drug and device approvals and simplify clinical trial requirements.[1] These aims most certainly address the supply side of our equation. While the availability of a new treatment for a previously untreated disease could theoretically increase overall demand, the short-run effects would most likely not change demand. Another interesting tidbit about the legislation is that the primary sponsor of the bill is Fred Upton, who also received the most donations from pharmaceutical companies of any other representative in the House in the year prior to proposing the bill.[1] The political support of pharmaceutical manufacturers is a strong sign that this legislation will shift the supply curve right and a theoretical reduction in price from P0 to P1 (Figure 1) as new drug approvals and competition among suppliers give consumers more options in their care. Some concerns about the implications around safety with accelerated approvals and relaxing trial requirements may have an impact on our market but these would most likely happen in post-market surveillance of the drugs and not effect these curves in the short run.

Figure 1: Theoretical supply shift right.

Figure 1: Theoretical supply shift right.

What about maximizing profit?

While passage of this bill should make it easier to bring new drugs to the market, would that actually reduce willingness-to-pay (WTP) of consumers who need them?  As profit-maximizers, pharmaceutical companies would still be incentivized to charge a price where marginal revenue meets marginal cost and in the case of an inelastic demand, my guess would be that the prices wouldn’t really come down.  Reducing the sunk cost of research and development (R&D) would not  change the marginal cost component, but maybe increasing the overall rate of return in this industry would increase the number of innovators as a whole.

It is not easy trying to figure out the best system that incentivizes innovation yet provides access to care for those that need it.  Profit is sometimes viewed as a 4-letter word, but if it brings more smart people to the table can it help us cure deadly diseases?  I hope you don’t try to draw conclusions about my political leanings from this post, but rather consider all arguments for and against the passage of a bill such as the 21st Century Cures Act.


[1] Molchan S, Rickert J, Powers J. The 21st Century Cures Act: More Homework to Do. Health Affairs Blog. September 24, 2015. Available at: http://healthaffairs.org/blog/2015/09/24/the-21st-century-cures-act-more-homework-to-do/, accessed on February 6, 2016.

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Joey Mattingly, PharmD, MBA is an assistant professor at the University of Maryland School of Pharmacy located in Baltimore, Maryland. Joey has managed retail and long-term care pharmacy operations in Kentucky, Illinois and Indiana. Leading Over The Counter is a blog of Joey's views and opinions on the topics of pharmacy leadership and management and do not represent the University of Maryland, Baltimore. Joey can be followed on Twitter @joeymattingly.

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