AARP vs. the Free Market on Drug Prices
Ignoring the simple rule
of demand in determining prices, news reports chide drug companies
for not pegging their prices to inflation’s rise.
By Amy Menefee
August 23, 2005
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Much like oil companies, drug companies are held to a different
standard than many businesses in the media. Journalists tend to
report on what drug prices “should” be based on the claims of a
particular group. The August 16 release of an AARP study on drug
prices provided more fodder, as the study’s main conclusion was that
drug prices “continued to substantially exceed the rate of general
inflation,” according to the AARP. The organization’s CEO, William
Novelli, said he was “very disappointed that brand name
manufacturers have failed to keep their price increases in line with
inflation.”
- He said/She
said: Most of the print coverage, concentrated on August 16,
bogged down in the debate between the AARP and the Pharmaceutical
Research and Manufacturers Association (PhRMA) about the
percentage increase in drug prices. Unfortunately, all of this
coverage missed the point that prices are ultimately determined by
demand for a product, no matter what anyone says they “should” be.
- Checking the
Facts: PhRMA’s senior vice president, Ken Johnson, was quoted
a few times saying that overall drug prices actually were not
keeping pace with inflation if insurance discounts were
considered. However, none of the reports clarified which side was
correct or explained all the factors that go into drug prices.
- Slowing or
Growing?: Newspaper stories across the country conflicted
about the significance of AARP’s results. While the Associated
Press and The New York Times focused on brand-name prices
“outrunning” inflation, Bloomberg News and The Minneapolis Star
Tribune led with the fact that price increases had slowed compared
to last year. And the Sacramento Bee emphasized the savings
available to consumers using generic drugs. Compare these opening
sentences:
“Wholesale prices for
the brand-name prescription drugs widely used by older Americans
rose at more than twice the rate of inflation during the year that
ended March 31, the AARP says.” – Associated Press
“Drugmakers slowed
average price increases in the U.S. on brand-name medicines in the
first quarter, according to a report released Monday by the consumer
group AARP.” – Bloomberg News
- Networks:
The networks gave only slight mention to the story; NBC didn’t
cover it. The August 16 “CBS Evening News” gave both AARP’s and
PhRMA’s side of the story. ABC’s “World News Tonight” used AARP’s
phrasing, touting price increases “more than twice the rate of
inflation,” and giving no rebuttal to the study’s conclusion.
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