Commentary

Manufacturing a Pharmaceutical Crisis

This essay was distributed nationally by Copley News Service.
Election years are good for political consultants, but bad for everyone else. Especially the average citizen who bears the brunt of Washington-style “reform.”

Concern about the nation’s rising prescription drug bill has set off the usual maneuvering for political advantage. Complains Rep. Mark Sanford, South Carolina Republican: “the road to hell is paved with good intentions,” an adage that applies “all too well” to the pharmaceutical debate. Critics complain that prescription drugs cost too much. Yet Americans spend more on alcohol. Moreover, inflammatory estimates of rising prices are often flawed by sampling and other problems. A related criticism is that drugs cost more in the United States than in other countries. Accurate comparisons are rare, however, since prices overseas reflect many things, particularly countries’ relative wealth and the politicized nature of their health care systems.

Indeed, despite the claims of industry critics, foreign price controls have unpredictable results. In a detailed study (using 1992 data), Patricia Danzon of the Wharton School found American consumers were paying less than they would in Canada, Germany, Sweden and Switzerland. To the extent that some foreign governments successfully hold down prices, they do so by free-riding on the U.S. As Bill McArthur of Canada’s Fraser Institute explains: “In effect, Canada must steal U.S. research and development to maintain itself.”

Although obviously unfair, U.S. citizens are not paying more as a result. Pharmaceutical companies base their prices on local supply and demand. If Congress imposed similar controls in America, many promising new drugs simply wouldn’t be developed: There is no foreign market upon which the U.S. could free ride. The congressional debate so far has focused on adding a drug benefit to Medicare to assist the elderly. But both houses of Congress have also passed bills, set to go to a joint conference committee, to allow importation of U.S. drugs from other countries. This “reimportation” strategy is superficially appealing.

Rep. Bernie Sanders, Vermont Independent, denounces as “a moral outrage” companies charging Americans more than Canadians. Sen. Slade Gorton, Washington Republican, contends legislators should not “allow Americans to continue to suffer immense discrimination.” Opponents have unsuccessfully focused on the lack of domestic safety control over foreign drug production. Charges Rep. Jack Kingston, Georgia Republican, “It’s not about drug safety. It’s about profit safety.” Even blunter is Sen. Paul Wellstone, Minnesota Democrat: The pharmaceutical industry only wants “to be safe to make huge profits on the misery and illness of consumers.”

What reimportation supporters really desire is price controls. And their legislation would effectively subject U.S. firms to foreign restrictions. Explains Sen. Byron Dorgan, North Dakota Democrat: “It is not my intention to have the American people go to another country for their drugs. It is my intention to force the pharmaceutical industry to reprice their drugs here in the United States.” In fact, since the United States is the largest market for most compounds — accounting for 40 percent of global sales —American producers would be more likely to raise foreign prices than lower domestic ones. U.S. firms might abandon some overseas markets altogether (Canada, for instance, accounts for less than 2 percent of international demand).

To the extent that reimportation “worked” to lower U.S. prices, it would risk disaster. “Profit safety” is the only way to ensure that drugs are available to alleviate “the misery and illness of consumers,” as Mr. Wellstone put it. Consider the problems besetting Canada’s socialized health-care system: endless waiting lists; minimal access to diagnostic technologies; patients fleeing abroad; provinces contracting out treatment to U.S. hospitals; and inadequate access to new medicines.

For some patients, pharmaceutical controls result in unnecessary pain. For others the result is premature death. For instance, Europeans are significantly less likely to receive cancer medicines, such as taxane.

Consequently, Europeans have notably lower survival rates. Reports Stephen Moore in the Wall Street Journal, “The pockets of protest over drug availability are growing stronger.”

Had the U.S. similarly controlled pharmaceutical prices and profits, numerous breakthrough drugs would never have been developed. Perhaps the most poignant example is AIDS. Today thousands of people literally owe their lives to profit-making pharmaceutical firms. Rising drug prices pose a problem, but one largely limited to a small fraction of the population. The best federal response would be to cover pharmaceuticals as part of a broader overhaul of Medicare, under which beneficiaries would be able to choose among a variety of plans. Continuing advances in drug therapy offer hope for the sick. Unless Congress gets in the way.

Admittedly, standing up to today’s demagogic attacks on the pharmaceutical industry isn’t easy. But quick-fix measures could hurt, and even kill, Americans for years to come.

Doug Bandow, a senior fellow at the Cato Institute, is a nationally syndicated columnist.