NCPA - National Center for Policy Analysis

Will Pharmaceuticals Come Under Price Controls?

May 23, 2000

Political observers note there is precious little opposition to the movement to subsidize drug purchases by seniors through Medicare. Congressional Democrats want to spend $200 billion on a drug benefit and Republicans have their own plan.

A number of analysts predict the costs for such a program will inevitably skyrocket, government leaders will impose price controls and reduced profits in the pharmaceutical industry will hobble future research and development of new medicines.

At Medicare's inception, the House Ways and Means Committee predicted the program would cost $12 billion by 1990 -- an estimate off by $95 billion. So much for cost containment.

Drug companies' tasks are already daunting.

  • The total costs of bringing drugs to market and the time devoted to testing and review have more than doubled since 1962 -- to an average of 12 years.
  • Experts say drug firms now market only about one out of every 100 products for which they have developed patents.
  • Two-thirds or more of drugs reaching the market don't recover their full costs.

Some studies claim Americans pay one-third more to twice as much for drugs as people do in Britain, Canada and Mexico. But Patricia Danzon, of the Wharton School at the University of Pennsylvania, has found such analyses flawed -- typically ignoring the role of generics and volume discounts in America.

She concludes that U.S. prices are in the middle of the international range: "The average U.S. consumer would have paid 3 percent more in Canada, 27 percent more in Germany, 30 percent less in France, 9 percent less in Italy, 8 percent less in Japan, 44 percent more in Switzerland, 9 percent more in Sweden and 24 percent less in the United Kingdom."

Source: Doug Bandow (Cato Institute), "Punishing Success: Congress Could Hurt Drug Industry With Price Controls," Investor's Business Daily, May 23, 2000.


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