As we discussed in Chapter 4, you’ll often hear that other countries sometimes pay a fraction of what the US pays for drugs. This is true and frustrating — and for even more reasons than you might think.
Drug makers know that the majority of their profits come from the U.S. That is the main market they consider when developing a drug. When other countries refuse to pay as much, the industry sells them the drugs at a discounted rate so that they’re making at least something in those geographies as well. But demanding to pay the same as European countries would do little except dry up almost all incentive for innovation.
James loves reading books in the library. It’s cheap and he doesn’t mind if he has to wait a bit for a new book to become available. But it’s not enough for James to enjoy the library. He can’t help telling everyone around him who buys books how dumb they are for wasting their money. Not enjoying being ridiculed, others stop buying books and eventually everyone just comes to the library. Then one day they look around and ask “hey, how come we’re not getting new books”? You see, as nice as it would have been for James to buy a few books, maybe as gifts, he didn’t have to. If he valued the book publishing industry and the flow of new books, he just needed to keep enjoying the library without telling other people how stupid they were for valuing books enough to pay for them.
If the U.S. Stopped rewarding its biopharmaceutical innovators, yes we might save some money in the short term on drugs that already exist, but in the long run we’d lose out on the drugs we don’t yet have — and lose trillions of dollars to avoidable hospital stays, unnecessary nursing homes, and curable diseases — had we only kept innovating. Please read this article on what might happen if the U.S. Took the same approach as Europe and others, how we could get there, and how we can avoid it.
We’ve already talked about the idea of the U.S. Imposing price controls directly on drugs. One way is for the U.S. To appoint people in government, like the Secretary of Health and Human Services, to decide what the price will be. But it’s actually possible to just try to let other countries do our price controlling for us. There are two kinds of proposals for doing so: fixing U.S. Prices to what other countries pay (a.k.a., International Reference Pricing or Most Favored Nation) and buying drugs in other countries for U.S. Patients (a.k.a. Drug Reimportation). Let’s briefly consider each (and why they won’t work).