Sunday, October 04, 2009

The Health of America, Part 19

The U.S. dominates Europe in pharmaceutical research and development, meaning that more new medicines are available more rapidly in America:

source: European Federation of Pharmaceutical Industries and Associations report at 3

So what would happen should the Obama Administration slow the drug innovation pipeline? In a recent issue, City Journal managing editor Benjamin Plotinsky explains:
One reason for America’s drug dominance (though far from the only one) is America’s unsocialized medicine. Here, with the exception of a few programs like Medicaid and the VA system, the government doesn’t regulate the price of drugs, so when a company invents something big--the latest miracle cancer drug, say--it strikes it rich, making its executives hunger for more. Take away the profit motive, as government-run medicine often does by forcing drug companies to sell at discounted prices, and innovation will dry up. "EU policy has kept pharmaceutical price inflation equal to average consumer price inflation over the last 19 years," write Joseph Golec and John Vernon in a 2006 paper for the National Bureau of Economic Research--"with real costs of about $5 billion in foregone R&D spending, 1,680 fewer research jobs and 46 foregone new medicines." True, America’s unregulated environment benefits any drug company that sells here, regardless of its nationality--but American companies profit most, since even in today’s global economy, a higher proportion of their sales than of European companies’ sales takes place in America.

So socialist Europe, by using American drugs (especially the "global NCEs" that Grabowski and Wang identify), is profiting from good old-fashioned American free enterprise. Europe doesn’t pay its way, either. As Guy Sorman wrote recently in City Journal, France’s socialized health-care system bullies American pharmaceutical companies into accepting bargain-basement prices for their wares. The companies make up for the loss by charging Americans more.

But the lesson here isn’t that America should be stingy about subsidizing French health care. If American consumers and drug companies play a disproportionate role in protecting the world from dangerous microbes--just as America did in protecting it from Soviet missiles--we should be proud. (It would be too much to hope that this good deed will go unpunished among European elites.) No, the lesson is to be skeptical of reports speaking glowingly of socialized health-care systems, because those systems wouldn’t work nearly as well as they do without unsocialized American medicine.
To be fair, John McCain got this wrong too. But the fact remains that drug price controls would choke pharmaceutical innovation and worsen America's health. The rest of the world's health, too. Which should, but won't, make socialists sick.

(via Critical Condition)

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