Prescription Drug Prices: Isn’t It About Time to Address the Real Issue?

By Dan Brooks, President

Our entire nation is concerned about the high price of prescription drugs. In late 2015, the price of Daraprim rose by more than 5,000%, prompting Hillary Clinton to Tweet that “Price gouging like this in the specialty drug market is outrageous.” Clinton’s tweet caused a sharp, swift reaction on Wall Street as biotech stocks fell. Based on the Wall Street reaction, one of Clinton’s staffers exclaimed, “FYI – We have started the war with Pharma!!” We can all agree that a 5,000% increase on a prescription drug is enormous, but the chief reason our drug prices are so high is rarely, if ever, addressed.

The real issue is that the European Union, Japan, Canada, Australia, and the rest of the affluent, industrialized world get a highly subsidized ride at the expense of America’s 310 million consumers. All of those markets have government price controls on prescription drugs. Only in the US is free market pricing in effect. And even here about 90 million get highly subsidized prices through Medicare, Medicaid, or VA/DoD discounts.

This means that the American consumer gets hit with the bulk of the cost of research and development (between $800 million and $1.5 billion just to bring a drug to market, and only one in hundreds is successful), as well as the cost of litigation when something goes wrong with one of these miracle drugs. (Wyeth [since acquired by Pfizer] paid out $18 billion, that’s right BILLION, in settlements over the last several years; and I didn’t see anyone standing up to offer to help defer this impact on their bottom line). Merck with Vioxx, another multi-billion dollar risk still in litigation. All of these costs of doing business are passed along to consumers, in this case almost exclusively to American consumers, as is reality in a free market.

And before your response is, “Well it’s time to institute price controls in the US,” understand that all you are really saying is, “Let’s shut down the R&D pipeline.” For with no ability to recoup their very substantial costs and make a premium profit on a very high risk business in any market in the world, why would any company invest billions in R&D? The answer is obvious. They wouldn’t. And this funding would dry up just as we have decoded the human genome. Not the time to destroy a system that has brought us some truly wonderful, lifesaving, life-enhancing drugs.

It’s time to end the rest of the affluent world’s free ride in not sharing these legitimate and very real costs. Forcing the Europeans, Japanese, Canadians, Aussies, and every other affluent market to bear their fair share of costs via free market pricing would spread this R&D pool over 850 million affluent consumers. Their prices would rise, ours would fall, substantially.

With a worldwide market, even more funding would be funneled into this prolific research field driving even more discoveries. It would also generate more funds to provide low cost prescription drugs to impoverished countries that so desperately need them, but are now unable to afford them.

Would we stand by and allow the Europeans to dictate to Boeing what the price of a 787 destined for their market should be? Obviously that would spark a major trade war. Yet the annual worldwide market for commercial airliners is about $150 billion. Compare that with the prescription drug market of $1 trillion. Yet we will allow virtually every other OCED trading partner to dictate drug prices in their markets and thereby shift the cost burden to the American consumer.

We need to stop treating the pharmaceutical companies as the enemy, and start treating them as a national treasure that is a major engine of innovation in our economy. We need to stop calling for price controls (remember that really means shutting down the R&D pipeline) and focus instead on making this a level playing and pricing field for every affluent consumer who wants access to the best pharmaceutical products in the world.

For more information on this topic, reach out to The Brooks Group President Dan Brooks.

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