Policy Analysis No. 475

Demonizing Drugmakers: The Political Assault on the Pharmaceutical Industry

Executive Summary

Few sectors of the economy have provided more benefits to consumers than the pharmaceutical industry. Drugmakers have been vilified by patients and politicians alike, however, because of what they see as unreasonably high drug costs.

Yet medicine is not the most important component of the recent rise in health care expenses. Moreover, the primary reason for current increases in total drug costs is that more and more people are using newer medicines—which means that consumer benefits are rising even faster.

Simplistic comparisons between drug costs in the United States and those in other countries have little value. Economic wealth, exchange rates, product liability rules, price controls, and other factors all contribute to the price of drugs.

More important, prices for U.S. pharmaceuticals are not excessive relative to the benefits they offer. Drugs have contributed to the sharp reduction in mortality rates from many diseases, including AIDS (Acquired Immune Deficiency Syndrome). Pharmaceuticals also reduce the cost of alternative treatments. Thus, restricting access to the newest and best drugs can be economically counterproductive.

Unfortunately, the only way to develop new drugs is to invest heavily in research and development. The $30 billion spent annually by U.S. drugmakers dwarfs the budget of the National Institutes of Health and investments by foreign drug companies. Profits of U.S. firms tend to be high, but not uniformly so, and they create a “virtuous cycle” that encourages more R&D to create new medicine.

Yet industry critics propose everything from socialized medicine to price controls and limits on patents. Such measures would, however, reduce incentives to create new medicines. It is true that some people, especially poor people in less-developed countries, lack sufficient access to pharmaceuticals. Private charity at home and abroad should make pharmaceuticals more available to people who are most in need, and Washington should include a drug benefit as part of overall Medicare reform. In the meantime, states should help needy seniors through limited pharmaceutical access programs.

Policymakers must avoid taking steps that would, intentionally or not, wreck a world-leading industry and deny people access to life-saving medicines.

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Doug Bandow is a senior fellow at the Cato Institute.