Drug prices are among the highest in the United States. Of course, we are the richest nation in the world. Plus, due to the high cost of doing business here and the process of getting a drug through the approval can cost between $800 million to a billion dollars. All Americans understand that, but there is one more reason why the drug prices are high - we do not believe in a global market for drugs (or for other non-defense products), whenever it is not convenient for some corporations (who can then influence public policy).
The myth that is disseminated by the drug industry (with the support of some lawmakers) is that the rest of the world has price controls and we don't. So Americans should pay higher prices because we get access to drugs sooner. (Related article: Why are drug prices higher in America?)
All these arguments are totally baseless and don't add up. They also defy all logical arguments based on globalization and free markets. In fact what shocks me the most is that these arguments are often made by folks who talk about free markets, less regulations, and globalization one day and at the same time they are doing everything they can to stop the development of a global market for drugs.
See what Hank McKinnell, CEO of Pfizer, said to Julie Appleby of USA Today. "Drug prices in the U.S. are based on the free market. Outside of the U.S., they're set by the government. (Those countries) are able to free ride on the investments American companies are making in research."
But this is simply not true. I have written another article (Why drug price controls in OECD countries are not responsible for higher drug prices in America?) on this subject using US Government data that "The benefit to U.S. drug purchasers from the new drugs that would be developed and marketed if there were no price controls is in the range of $5 billion to $7 billion per year. In the short term, the deregulation of OECD prices is not likely to have any impact on U.S. drug prices." In other words, price controls overseas are not the reason for higher prices. It is just that our markets are closed. And I know how this works. I have spent many frustrating years in Japan dealing with their closed markets - they seem to be open and the Japanese can often claim that they are open, but just try bringing anything from outside Japan and you are dealing with a nightmare.
In a book that McKinnell is trying to promote, he is arguing that we end the free ride, and use trade agreements to make sure foreign governments pay their fair share. The point here is that if we went the trade agreements route, nothing will ever happen. The only solution to bring drug prices down in America is to open the markets (safety will take care of itself because the market forces will work very effectively). That will force the drugmakers to change their dysfunctional business models.
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