Ten Myths about the Market for Prescription Drugs
Myth No. 5: Americans Could Reduce Their Drug Costs If They Paid the Same Prices as People in Less-Developed Countries
Critics of drug companies complain that consumers can go to Mexico and buy drugs at less than half their cost in the United States. Such critics often contend that price controls could bring U.S. drug prices down to Mexican levels.
Prices for the same drugs do differ in different countries, but Americans cannot have access to the newest drugs by paying Mexican prices for a simple reason. The research and development required to bring drugs into production can cost millions of dollars over many years, but the cost of manufacturing most drugs is small. Because manufacturers have discretion in pricing, their prices may be closer to production costs in poorer countries, which could not otherwise afford the drug, and higher in wealthier countries - more accurately reflecting the drug's value to patients. If patients in every country paid the lower price, there would be no money for research and development and no new drugs.
"If all patients paid the lower prices charged in poor countries, there would be no money for research and development and no new drugs."
Most studies that compare international drug prices fail to compare income differences across countries. Those that do show that, in most countries, patients use higher quantities of drugs that are inexpensive for that nation. That is, people take the drugs they can afford. Prices for the same drugs do differ in different countries because in poorer countries, drug firms simply try to cover their costs or earn modest sums while they earn larger profits in wealthier nations.
Only one drug in 1,000 ever makes it to market. Much essential research and development never produces a usable drug. Prices also reflect the need to attract investment and earn profits for future research and development activities. Of all drugs that are introduced, three in 10 must be hugely successful to cover the costs of more marginal drugs and failures along the way.
As with computers, cars, telecommunications and other cutting-edge products, new pharmaceuticals are introduced in developed countries at higher prices, so consumers in those countries gain the first benefits but also pay a higher portion of the development costs. Nonetheless, new pharmaceuticals tend to be introduced around the world more rapidly than other technologies. For example, the costly antiviral AIDS drug AZT found its way into Africa within four to five years of its introduction in the United States. When scientists discovered that AZT often could prevent the transmission of AIDS from mothers to babies, this new use was adopted widely in Africa for pennies a dose at about the same time it was introduced in the United States.