Cost-Based Pricing For Innovative Medicines Is Unviable And Harmful


Barber et al. just published a fundamentally flawed study on diabetes medicines in JAMA Network Open (JNO). This study wrongly suggests that cost-based pricing accurately values innovative on-patent medicines, distracts from serious policymaking, and fuels political grandstanding by politicians such as Senator Bernie Sanders.

Cost-based pricing could be an economically viable pricing strategy for generic drugs. Mark Cuban’s Cost Plus Drugs (CPD), launched in 2022, is attempting to disrupt the generics industry using this pricing model. CPD sells generic medicines directly to consumers using a simple cost-based pricing formula: production cost plus a 15% markup, a $5 pharmacy service fee and a $5 shipping fee. While CPD hasn’t yet turned a profit, there are reasons to believe that this pricing model is applicable to the generics market.

The Barber et al. study is not applying the cost-based valuation methodology to generics, however. They are applying it to branded drugs. As a result, the authors demonstrate a profound misunderstanding of the innovative drug development process and are simply advocating for uneconomical price controls.

Click to read the full article in Forbes.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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