Are We Valuing Prescription Drugs Appropriately?

Date: February 5, 2024
Journal: Health Affairs Forefront
Citation: "Are We Valuing Prescription Drugs Appropriately?", Health Affairs Forefront, February 5, 2024. DOI: 10.1377/forefront.20240130.833652

With some new drug therapies priced like high-end condos, the question of whether prescription drugs are undervalued may seem misplaced. Still, there are compelling reasons to believe that the value of many drugs—and health care innovations broadly—is underestimated in conventional economic assessments. There are also important caveats to these arguments. These assessments matter because they seek to place a monetary value on a drug’s therapeutic benefit and can inform negotiations over its price, including Medicare’s drug price negotiations under the Inflation Reduction Act. Pricing drugs too high can divert health care resources away from better uses elsewhere. Pricing them too low can discourage worthwhile innovation.

We argue that methods for valuing drug therapies need updating. Such improvements would make the estimated value of some, although not all, prescription drugs more favorable in economic assessments. In the long run, these improvements will have the effect of promoting the continued development of drugs that produce health benefits that are worth more than what society must spend to invent those drugs in the first place.

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