Just about every nation on earth regulates the prices of prescription drugs -- with the exception of the United States. Policy analysts predict that if drugs are added to Medicare benefits, price controls will follow as night follows day. And that will send the U.S. pharmaceutical industry on a downward spiral.

The U.S. is home to the most innovative drug industry on the globe. Drugs are cheaper under price controls in foreign countries because pharmaceutical firms here and American consumers subsidize those lower prices abroad, economists explain. America foots the bill for research and development, while price controls in other countries shield their citizens from shouldering their fair share of the costs involved.

• Germany maintained the last free market in drugs until it adopted a "reference price system" in the early 1990s -- and now the free market is gone.

• Canada's national health system decrees that new drugs can't be priced higher than the average charged in seven other developed nations -- including nations with price controls.

• Australia's government sets drug prices and prices there are reported to be the world's lowest, by many measures.

• In Japan, the national health care system also sets prices and if sales exceed expectations, price cuts can be ordered.

• Unlike other countries, the United Kingdom regulates drug companies' profits, rather than prices.

Sources: Holman W. Jenkins Jr., "Food Versus Drugs?" Wall Street Journal, and "Other Countries Set Drug Prices," USA Today, both November 10, 1999.

For WSJ text (requires interactive subscription) http://online.wsj.com/articles
/SB942187971825318084.htm