“DRUGS have been marketed at such extraordinarily high prices that many people will simply not be able to afford them,” wrote a top cancer doctor in a scathing editorial in the Washington Post. That was in 2004. More than a decade later, the cost of drugs in America is still soaring—the most recent uproar was sparked by the price of Mylan’s EpiPen allergy medicine, which has jumped by about 600% since 2007. Despite the furore, drug companies continue to charge exorbitant prices in America. Why?
The simple answer is because they can. European governments control prices in various ways—Britain has the strictest system, refusing to pay for medicines that fail to meet a threshold of cost-effectiveness. But in America companies set whatever official price they like. Insurers and the government then whittle down that price using methods that vary from one type of patient to the next. (Like so much of American health care, this system is hard to understand, to the delight of the firms that profit from it.) Private customers—usually employers—hire third parties to negotiate discounts. Medicaid, the government’s programme for the poor, receives a mandated discount. But drug firms’ single biggest customer is Medicare, which in 2014 spent $112 billion on medicines for the old.
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