US Drug Prices Started to Explode in the 1980s, Contrary to What the NYT Tells You

14th November 2018 Off By binary
US Drug Prices Started to Explode in the 1980s, Contrary to What the NYT Tells You
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Austin Frakt had an interesting Upshot piece in the NYT saying that drug spending in the US began to sharply diverge from other countries in the 1990s. This actually is not very clear, since the comparison group dating back to the 1980s is small. I am actually more struck by the explosion in spending in the 1980s, with it nearly doubling as a share of GDP over the course of the decade. Note that drug spending had not been increasing at all as a share of GDP over the prior two decades.

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Source: Bureau of Economic Analysis.

The obvious villain here is the passage of the Bayh-Dole Act in 1980, which allowed private corporations to get patent rights to government-funded research. This undoubtedly led to more investment in research and development, but it also led to a huge increase in spending the difference between the current 2.2 percent of GDP that we spend on drugs and the 0.4 percent we spent in 1980 is equal to $360 billion a year, roughly five times annual spending on food stamps.

 

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