Prescription Price Gouging: A Need for Good Government or Good Corporate Citizens?

Prescription Price Gouging: A Need for Good Government or Good Corporate Citizens?

Abstract

Sara, a research and development (R&D) manager at one of the top pharmaceutical companies in the U.S., was surprised to see her cousin Rachel, who lives in a neighboring state, featured on a news segment personalizing the impact that high prescription drug prices have on ordinary families. Rachel demonized the pharmaceutical industry for its excessive price increases on critical medicines that average families need. Rachel wants to see more government action to curtail price increases for prescription drugs, especially for critical, life-saving medicines. In her role, Sara has little impact on the pricing model her company uses for prescription drugs, but knows that most new drugs do not make it to market with about 1 in 5,000 drugs successfully completing clinical trials, FDA approval, and becoming profitable. Sara knows first-hand that many pharmaceutical companies engage in little-known corporate social responsibility (CSR) initiatives that greatly help society. So, the profits made by these companies are shared with a global community. Sara wants to encourage her company to expand its CSR efforts and educate her cousin and others about CSR initiatives of the pharmaceutical industry. Both women are spurred to action in opposing directions—Rachel pursuing a government solution of effective legislation and Sara seeking a business solution of greater CSR activities. This case explores interdependencies between business, society, and government to achieve public good. Students examine whether government actions with providing patents and exclusivity marketing rights for pharmaceutical companies actually foster price monopolies; debate expectations of pharmaceutical companies to earn profits, as compensation for uncertainty, innovation, and costs associated with R&D of new prescription drugs; explore whether larger profits of pharmaceutical companies are justifiable; and better understand interdependences between business and society.

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