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 inflations rise.
By Amy Menefee [1]
August 23, 2005
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 studys main conclusion was that drug prices continued to substantially exceed the rate of general inflation, according to the AARP. The organizations CEO, William Novelli, said he was very disappointed that brand name manufacturers have failed to keep their price increases in line with inflation.
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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.
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Checking the
Facts: PhRMAs 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.
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Slowing or
Growing?: Newspaper stories across the country conflicted
about the significance of AARPs 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
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Networks:
The networks gave only slight mention to the story; NBC didnt
cover it. The August 16 CBS Evening News gave both AARPs and
PhRMAs side of the story. ABCs World News Tonight used AARPs
phrasing, touting price increases more than twice the rate of
inflation, and giving no rebuttal to the studys conclusion.