|State Negotiates Drug Deals|
|Key Words||Drug suppliers, negotiate, prices, insurance, buyers, price controls, transactions|
Maine has passed a law allowing the state to negotiate with drug suppliers on behalf of more than 300,000 residents who do not have insurance coverage for prescription drugs. The objective is to obtain lower prices similar to those obtained by other large buyers. If prices do not fall in three years, the state can impose price controls.
The Pharmaceutical Research and Manufacturers of America have sued the state, alleging that the law is unconstitutional because it conflicts with the federal Medicaid program and regulates transactions outside the state. The Maine Human Services Commissioner observed that the association is concerned that the Maine law will be copied elsewhere.
(Updated September 1, 2000)
1. Draw a diagram showing the monopoly equilibrium of a drug producer. Include the demand and marginal revenue curves, and the average total and marginal cost curves.
2. Suppose that price controls are imposed.
|Source||Associated Press (no author), "Drug industry sues Maine over price controls," St. Petersburg Times, August 12, 2000.|
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