Drug Pricing Lab 07/26/2017

Baseball Illuminates the Problem with U.S. Drug Pricing

Dana Goldman and Darius Lakdawalla look to Major League baseball to explain the drug pricing problem.

In the Wall Street Journal article, Dana Goldman and Darius Lakdawalla march out astronomical baseball salaries to justify high drug prices, stating that just as salaries entice the best baseball talent, sky high prices are necessary for innovation. Dr. Peter Bach and Dr. Kent Sepkowitz explain that the analogy is probative, because the authors are wrong about baseball.

Dr. Peter Bach and Dr. Kent Sepkowitz’s commentary

Starting in the 1970s, free agency allowed baseball players to act as monopolists, extracting higher and higher compensation. David Price today earns $9,000 a pitch; Sandy Koufax made about $260 in 1965 in today’s dollars. Taxpayers help finance these higher salaries through stadium bonds and tax credits. Ticket holders pick up a large share: watching Koufax from the bleachers cost $2; in 2017 going to a game is an event for which funds need to be set aside.

So baseball is indeed a pretty good way of understanding pharmaceutical pricing in the US. Pharmaceutical companies, like pro baseball players, are monopolists supported by taxes and taxpayers. The cost of Medicare’s Part D prescription drug program has risen faster than any other part of the benefit in recent years. More than any other western country, patients in the US stop taking their medications because they cannot afford them.

Another parallel: over time both baseball salaries and drug prices have risen out of proportion to the value of the product. David Price has a jawdrop of a slider, but he is just no better a pitcher than Sandy Koufax was at more than 30 times the price. In fact since 1967 the average salary rose 30 fold in today’s dollars, while batting averages have remained essentially flat, and runs per game are up a meager 13%, seen in the figure below. Same for drugs: prices of cancer drugs have risen five times as fast as the benefits those drugs deliver.

Yep, Goldman and Lakdawalla are on to something. If you want to understand pharmaceutical pricing, take a trip out to the ballpark.

Trends in runs per game, mean salaries and batting average

*Average salaries are adjusted for inflation. Batting averages are times ten, so a .230 batting average is displayed as 2.3.

Share

Research & Insights

We conduct non-partisan, independent research, and make our work accessible and informative to policymakers and the general audience alike. Browse our featured research or explore our work by article type.

Medicare Part B Premium Dynamics Explained
The Drug Pricing Lab commissioned Milliman to prepare a report exploring the impact of changes in Medicare Part B program costs on beneficiaries’ premiums and Social Security payments. This report focuses on the 2022 Part B premium for beneficiaries with various income levels to illustrate the payment dynamics and discusses the implications for related programs.
Milliman 12/23/2021
Comparing Factors that Influence Pharmaceutical Pricing and Access in the…
Drug prices in the United States are some of the highest in the world, which has triggered several policy proposals aimed at adopting pricing strategies used by other countries.
Drug Pricing Lab 12/20/2021
Biosimilars in Medicare Part D: pricing dynamics and considerations
The Drug Pricing Lab engaged Milliman to prepare a report summarizing the pricing dynamics affecting utilization of biosimilars in the current Medicare Part D marketplace and under the proposed Part D benefit design in the Build Back Better Act.

This report was commissioned by the Drug Pricing Lab.
Milliman 12/14/2021
Evaluating Industry’s Drug Pricing Claims
A closer look at three of PhRMA’s most cited talking points.
Drug Pricing Lab 11/18/2021
Mapping conflict of interests: scoping review
A scoping review of the literature to identify all known ties between the medical product industry and the parties and activities in the healthcare ecosystem.
Drug Pricing Lab 11/03/2021
Production Plus Profit Pricing (P-quad) FAQ
08/17/2021
What A Waste! The National Academy Of Medicine’s Report On…
Why Congress should not follow the National Academy of Science, Engineering, and Medicine’s recommendation to remove the JW modifier.
Health Affairs Blog 07/09/2021
Medicare Must Study Unproven, Expensive Alzheimer’s Drug
Medicare cannot indiscriminately cover the cost of Aduhelm for the treatment of Alzheimer's disease without first evaluating whether it truly works.
Bloomberg Opinion 06/15/2021
Value-Based Management of Specialty Drugs: Practical Considerations and Implications for…
Not all approaches are suited to meeting policy makers and health plans’ goals of managing specialty drugs based on their value. Researchers conducted a qualitative study with Blue Cross Blue Shield plans interested in implementing value-based specialty pharmacy management to observe the plans’ objectives, strategies, and factors influencing their ability to execute on these strategies.
AJMC 05/13/2021
Instead of debating 'first-shot' vs 'set-aside' vaccine approaches, hospitals' study…
Hospitals could start studies of their own employees to answer important questions, including whether the first-shot approach has downsides when compared to the set-aside strategy.
STAT 01/04/2021
Trump's Drug-Pricing Ideas Would Cost Taxpayers a Bundle
Meanwhile, pharmaceutical companies would stand to make a lot more money.
Bloomberg Opinion 09/29/2020
We can't tackle the pandemic without figuring out which Covid-19…
There may be several Covid-19 vaccines by winter, but there will also need to be a study comparing the viruses to one another as part of rolling out widespread vaccination.
STAT 09/24/2020
Newsletter

Stay up to date on our work and news