NCPA - National Center for Policy Analysis


December 8, 2005

An idea gaining currency on both sides of the aisle proposes that the U.S. government step in and "negotiate" drug prices for Medicare recipients. Lawmakers should stop and consider the fate of the pharmaceutical industry in Europe, where this practice is widespread, before they go down this misguided path, Grace-Marie Turner, president of the Galen Institute.

European countries have had drug price controls in place for long enough to examine their impact, and it is dismaying. A recent study by the Department of Commerce looked at the impact of pharmaceutical price controls in 11 members of the Organization for Economic Cooperation and Development, among them the Netherlands, France, and Germany.

  • The researchers found that price controls caused a $5 billion to $8 billion annual reduction in funding for drug research and development.
  • What could that amount buy? It could lead to the discovery of three or four new molecular entities - potentially life-saving chemicals - each year.

Price controls are a major reason the drug industry's center of gravity has shifted from Europe to America in recent years. Whereas two decades ago, the European and American pharmaceutical markets were about the same size, today the U.S. market is twice as big as the European market and vastly more profitable, says Turner.

Franz Humer, chairman of Swiss drug maker Roche, noted that "the shift away from Europe is one outcome of years of misguided and short-sighted policies in Europe." No wonder European health experts and politicians, among them the health minister of the Netherlands, are starting to speak out in favor of more competition in the health care system.

It would be a sad irony if U.S. politicians now took us in the opposite direction, by reversing the "non-intervention" clause in the Medicare Modernization Act, says Turner.

Source: Grace-Marie Turner, "How Europe's Drug Industry Lost Its Mojo," Galen Institute, December 7, 2005; and "Pharmaceutical Price Controls in OECD Countries: Implications for U.S. Consumers, Pricing, Research and Development, and Innovation," U.S. Department of Commerce, December 2004.


Browse more articles on Health Issues