I thought I was done injecting my political bias into this blog, but hey, it’s my blog and I’ll write what I want, dammit. If you object, you can (a) stop reading here, (2) write your own blog expressing your own opinions, or (d) leave a comment.
People bitch about the high cost of pharmaceuticals, but fail to realize the vast amount of research that it takes to bring a molecule to market. It takes teams of researchers years of synthesizing and testing hundreds of compounds before the risk is taken to subject a molecule to costly clinical trials. Most promising compounds don’t even make it through clinical trials. When a drug is approved, you bet it is going to cost a lot. All of the expense incurred in research and development has to be recouped, and other less-profitable research programs have to be funded. As the quote below points out, it costs far less to produce a drug than it does to develop one, thus the lower cost of generics.
The following quote is from a lengthy report put out by the CATO institute, evaluating the health care plans of McCain and Obama. Read it here. I’ve interjected some old macro photos of mine for your viewing pleasure.
"As with the insurance industry, Obama frequently criticizes the pharmaceutical industry for “dramatically overcharging Americans for what they offer.” Specifically, Obama would have the federal government negotiate directly with drug companies to set prescription prices under Medicare Part D. And, he would allow the reimportation of drugs from Canada.
Both proposals are defensible in the abstract. Since in the case of Medicare Part D the government is the purchaser, there is no reason that the government shouldn’t be able to negotiate about what it pays just as it does with any other goods and services that it purchases. And consumers should be able to purchase goods at the lowest price they can find, even across borders. In practice, however, both proposals are likely to be implemented in ways that will have serious adverse consequences.
American research and development provides the innovation that produces most of the modern pharmaceutical breakthroughs that have helped cure diseases, improve the quality of life for millions worldwide, and saved countless lives. In fact, U.S. companies have developed half of all new major medicines patented worldwide over the past 20 years.
On average, it takes 12 to 15 years and costs as much as $800 million before a company can bring a new drug to market. Those costs must be recouped if innovation is to continue. As a practical matter, however, Americans end up paying for most of the costs of drug R&D while the rest of the world free rides. That is because most of the world imposes various levels of price controls and refuses to pay market prices. Because the actual production of drugs, as opposed to research and development, is relatively cheap, pharmaceutical companies have been able to segment their markets, selling drugs cheaper in other countries while U.S. consumers pay full cost. For example, brand-name drugs can cost as much as two-thirds more in the United States as they do across the border in Canada.
Ideally, if consumers were free to reimport those less expensive drugs from Canada, the pharmaceutical industry would respond by refusing to sell their product in Canada under that country’s price control regime. Canada would be forced to raise prices to market levels, and share some of the research and development costs. Prices would eventually seek an equilibrium: lower in the United States, higher in Canada.
Taken this way, reimportation would not only be unobjectionable, it would be a step toward freer markets generally. However, Obama appears to lean toward a set of reimportation regulations that would prohibit companies from limiting supplies or raising prices abroad. In the Senate, he voted for the Pharmaceutical Market Access and Safety Act of 2004, sponsored by Sens. Byron Dorgan and Olympia Snowe, which would have allowed reimportation under precisely such a restrictive regime. Pharmaceutical companies would have been prohibited from trying to undercut other countries’ price controls.
In effect, allowing reimportation under these restrictions would simply create a “parallel market” with drugs being reimported from low-price to high-price markets. Eventually all drugs would go to the low-price markets, where companies can’t recover research and development costs, only to be reimported to high-price markets, effectively importing foreign price controls to our markets. As Senator Dorgan said, “It is my intention to force the pharmaceutical industry to re-price their drugs here in the United States.” The results would be devastating for the future of pharmaceutical development. In exchange for this risk, American consumers would see relatively little gain. Although some patients with very high drug costs would undoubtedly see substantial savings, the Congressional Budget Office found that allowing drug importation would reduce overall health care expenditures for the average American consumer by just one percent.
Similarly, allowing the government to directly negotiate prices under Medicare Part D would likely yield minimal gain in exchange for a great deal of potential pain. Private plans under Part D have already negotiated substantial price reductions. The CBO estimates that, unless Medicare were willing to impose rigid formularies that would deny beneficiaries access to many drugs, allowing the government to directly negotiate prices is unlikely to yield substantial additional savings.
But even if having the government negotiate with drug companies were somehow successful in reducing prices, any cost savings would come at the expense of pharmaceutical innovation. Benjamin Zycher, senior fellow at the Manhattan Institute, estimates that allowing Medicare to negotiate prices could reduce pharmaceutical research and development by as much as $10 billion per year. That would substantially reduce the number of new drugs coming to market."
…by eliminating jobs that I will be competing for in a few years. That’s just great.
