NCPA - National Center for Policy Analysis


October 28, 2005

France, Germany and Japan can keep health care costs so low because they let U.S.-based companies spend the vast sums required to get a drug approved for the market (an average of $1.3 billion in 2003) and then use price controls and other anti-competitive devices to avoid paying the cost, explains James K. Glassman, a resident fellow at the American Enterprise Institute.

A study of 11 Organization for Economic Cooperation and Development (OECD) countries (France, Germany, Canada, Japan, etc.) by the U.S. Dept. of Commerce found that all rely on pharmaceutical price controls, which prevent drug companies from charging a market-based price for their products.

These policies may look good in the short term, says Glassman, but:

  • They have reduced health care quality for these countries and have forced the export of their R&D operations to the United States; eight of the world's 10 top-selling drugs are produced by companies headquartered here.
  • Research has shown clearly that price control policies hurt Europeans themselves; the annual economic loss in Germany is $3 billion annually, says a 2004 study by Bain & Co.

But Europe's policies also hurt Americans, not to mention Ugandans and Bolivians, explains Glassman:

  • The Commerce report notes that if current European policies were reversed, global R&D would be increased to a level that "could lead to three or four new molecular entities (drugs) annually."
  • The benefit to American purchasers "if there were no price controls (in Europe) is in the range of $5 billion to $7 billion per year," say researchers.

To reduce health care costs and still deliver great care, the United States should demand that other developed countries put an end to their practice of free riding on American innovation, says Glassman.

Source: James K. Glassman, "U.S. Consumers Shafted by European Price Controls," Scripps Howard News Service, October 25, 2005.

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