BUSI 429 Week 5 Discussion Board Forum 5 Example

Discussion Board Forum 5: The Economics of Prescription Drug Prices

BUSI 429 Healthcare Economics, Discussion Board Forum 5

Thread by [Student Name]

The hospital pharmacy details and the classmates are composites; the textbook, Scripture and the peer-reviewed sources cited are real.

Our hospital's pharmacy director recently asked the leadership team what Medicare's new drug price negotiation program would mean for us and our patients. Several of the first drugs selected, such as blood thinners and diabetes medications, are among the most commonly used by our Medicare patients after discharge. The question has two parts: how much will prices fall, and will lower prices mean fewer new drugs in the future? Both matter to a hospital, since lower prices ease the burden on patients who struggle to fill prescriptions after discharge, while new drugs shape how we will treat patients a decade from now.

Feldstein (2015) explains that patented drugs are sold by firms with temporary monopolies, so prices are set well above the cost of producing each pill. Those high prices are what make the large, risky investment in research and development worthwhile. Any policy that lowers prices for patented drugs therefore faces a trade-off between affordability now and the incentive to discover new treatments later. The economic question is how large each side of that trade-off is.

On the savings side, Jeon et al. (2026) modeled Medicare Part D spending for the first ten drugs selected for negotiation and projected that negotiated prices would reduce 2026 net spending from $26.1 billion to $23.8 billion, a drop of about 8.8%. The biggest reductions came for drugs that had paid low rebates in the past and still had years of exclusivity left, while drugs close to generic entry saw less change. On the innovation side, Kang et al. (2026) examined clinical trials started from 2015 through 2024 and found that overall trial activity remained stable, returning to prepandemic levels, but that manufacturers with drugs subject to negotiation initiated fewer trials, particularly in certain cancers.

Taken together, the evidence suggests that negotiation produces real but moderate savings and some shift in where companies invest. I would favor continuing negotiation while tying negotiated prices to clinical value, so that drugs offering large health gains keep higher prices and drugs offering little added benefit receive lower ones. That approach would preserve the reward for important innovation while limiting spending on drugs that add little. A patent is a reward for innovation; the policy question is how large the reward should be and who should pay it. Leviticus instructs God's people not to wrong one another when buying and selling (English Standard Version Bible, 2001/2016, Leviticus 25:14), a principle that applies to both sides of the drug market.

Reply to Elena

Elena, you argued that negotiation will reduce the number of new drugs developed and that the long-term cost to patients will outweigh any savings. Your concern reflects a real economic mechanism, since lower expected prices reduce the expected return on research and investors notice quickly. The early evidence, though, suggests the effect is narrower than some predicted. Kang et al. (2026) found that overall clinical trial activity remained stable after negotiation began, with declines concentrated among manufacturers whose drugs were selected and in particular cancer areas. That pattern suggests companies may be shifting their research priorities rather than abandoning research altogether, at least in the first years after the law took effect. Feldstein (2015) explains that firms invest where expected profits are highest, so policy can influence which diseases receive attention. The key question is whether the trials not started would have produced valuable drugs or modest variations on existing ones. Jeon et al. (2026) also found that savings were concentrated among drugs that had long exclusivity and low rebates, which may be the drugs with the most room to lower prices. Tracking new drug approvals over the next decade, rather than trial counts alone, will be the better test. Would you support negotiation if it were structured to protect higher prices for drugs that treat diseases with no good existing options? That design would aim the reward at the kind of innovation patients need most, and it would ease the concern that negotiation punishes all research equally. It might also encourage companies to move their research toward diseases where current treatments fall short.

Reply to Darius

Darius, you asked how Medicare should decide what a fair negotiated price is, and whether cost-effectiveness analysis should play a role. Economists generally favor using evidence on value, and the program's design leaves room for it, though the law limits how certain measures may be used. Xie et al. (2026) reviewed published cost-effectiveness studies for the 15 drugs selected for the second round of negotiation and found enormous variation, with median costs per quality-adjusted life year ranging from about $1,800 for one diabetes drug to $640,000 for one cancer drug. Most studies took a narrow perspective and many were sponsored by industry, and results sometimes differed sharply between two approved uses of the same drug. Feldstein (2015) notes that cost-effectiveness analysis is a useful way to compare the value of different treatments but that the results depend heavily on assumptions. For Medicare, that suggests using independent cost-effectiveness studies as one input, along with prices in other countries and the availability of alternatives. For hospitals, it suggests that pharmacy and therapeutics committees could use the same evidence to choose formulary drugs and to decide which expensive agents need prior approval. Should negotiated prices differ by indication when a drug's value differs so much between uses? That question will matter more as more drugs with several approved uses enter the program. A single price for a drug that is highly valuable in one use and marginal in another will either overpay for the marginal use or underpay for the valuable one, and neither result sends companies the right signal about where to invest.

References

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Feldstein, P. J. (2015). Health policy issues: An economic perspective (6th ed.). Health Administration Press.

Jeon, Y. K., Hansen, R. N., Gabriel, N., Martin, K., & Sullivan, S. D. (2026). Spending impact of the first 10 drugs selected for Medicare drug price negotiation in the United States. Value in Health, 29(7), 1228-1234. https://doi.org/10.1016/j.jval.2026.03.010

Kang, S. Y., Liu, M., & Ji, Y. (2026). Trends in biopharmaceutical clinical trials after Medicare drug price negotiation. Health Affairs, 45(1), 48-53. https://doi.org/10.1377/hlthaff.2025.00720

Xie, F., Zhou, T., Ma, Y., Cohen, J. T., & Neumann, P. J. (2026). Cost-effectiveness of the 15 drugs selected for initial price applicability year 2027 by Centers for Medicare and Medicaid Services drug price negotiation program. Value in Health, 29(1), 14-18. https://doi.org/10.1016/j.jval.2025.08.019