This is the Cato Daily Podcast for Monday, January 7th, 2019.

I'm Caleb Brown.

What drives drug prices and what can be done to discipline otherwise rent-seeking

drug makers who like to keep prices relatively high.

Charlie Silver is co-author of the Cato Institute book, Overcharged.

We spoke last week in Dallas.

We are in 2019, and at the beginning of the year, drug companies announced rather large price increases for drugs that were already on the market.

Why?

Because they can and maybe also because they're worried that they may not be able to in the future

There's obviously been a tremendous uproar about pharmaceutical prices.

And the companies are in the position still

where they can increase prices pretty much as they want.

So they do that and they know that Medicare will pay, they know that Medicaid will pay, they know that most of the insurers

will pay whatever they're paying, and they know that the PBMs also like higher list prices, the pension benefit managers like higher list prices

because their compensation comes off the discounts that they can negotiate

from the higher list prices. The higher the list price the bigger the discount, the more money the pension benefit managers make.

So that situation is a sort of commentary on the way things are today. And there might be some concern though that

things will get tougher on them in the future. As I said there's been

considerable uproar and increasing political activity in the area of drug prices.

President Trump has proposed this sort of international market basket approach where

drug companies would be able to charge in this country only some amount tied to the average that they charge in other

countries for the same medications and the drug companies might see that as the writing on the wall.

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