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What We Risk Losing in the Push for Cheaper Drugs
Two-thirds of all new drugs are developed in the United States. Why? Because there’s money in it.
As if that were a bad thing.
Most people don’t expect GM or Ford to sell cars at a loss (unless they’re EVs). Or a roofer to put a new roof on their house for free. Or the fridge to be filled up with food — that just sort of appears.
It’s understood that making money is what makes it possible for GM and Ford to make cars. And for homes to have roofs that don’t leak. To have good food to eat. The profit motive isn’t evil. It’s essential. Take it away and what you get is … what you aren’t going to get.
Including life-saving drugs.
Because why would anyone invest in developing them if they know ahead of time that the investment will never be recovered?
Would you get out of bed every morning to go to work if you knew ahead of time they weren’t going to pay you at the end of the week? With drugs, the profit motive is seen as cretinous because the cost of some drugs is very high. This is absolutely true. It’s easy for this reason to demonize the drug manufacturers because there are people who badly need these drugs. On a human level, everyone wants people who are sick and in need to have what they need.
But would they have it at all if it were never made in the first place?
For every drug that turns a profit, there are many others that never do. These losses have got to be recovered. It’s the price we pay to have the things we need — including life-saving drugs and medical care.
Nations that have dipped their toes in health care socialism do not innovate, they stagnate. Health care is “free” in Great Britain — and you get exactly what that’s worth.
The value added to American society by relatively free-market health care is staggering.
Economists at the University of Chicago, at the behest of the U.S. Chamber of Commerce, found “American medical innovation is projected to deliver $167.5 trillion in societal value over a 30-year horizon, saving lives, extending lifespans, and driving economic growth through increased productivity and tax revenue.” They cite “breakthroughs in treatments for HIV, heart disease, breast cancer and obesity” that adds “years of life and enhancing quality of life for millions of Americans.”
The study says that every dollar invested in research and development yields a “27-to-1 return.”
According to the Peter G. Peterson Foundation, “The United States ranked first in science and technology by a significant margin. That result stems from U.S. leadership in the development of new drugs and medical devices gaining regulatory approval.”
The U.S. “ranks near the top in scientific Nobel prizes per capita, scientific impact in academia, and research and development expenditures per capita” with the benefit that “some of the most innovative and cutting-edge medical treatment options in the world [are] available to Americans before they are accessible elsewhere.”
The cost of some drugs is high — and there are absolutely problems with the health care system generally. But most of these problems can be accurately attributed to socialist interventions such as Obamacare, which has caused the cost Americans pay for coverage to increase massively over the past several years. These costs aren’t going to be reduced by more such interventions, particularly the price controls being pushed by perhaps well-meaning people who don’t have a deep understanding of economics.
The idea imposes price controls in the form of using the lowest drug prices from a selected number of socialist and socialist-lite nations (styled Most Favored Nations) as the basis for what can be charged for the same/equivalent drugs here in the U.S.
Last summer, the Trump administration issued an executive order that “directs multiple federal agencies, including the U.S. Department of Health and Human Services (HHS), to take specific actions aimed at compelling drug manufacturers to lower drug prices in the United States in a manner comparable with other ‘developed’ nations.”
Italics added. Compulsion may lower the cost of prescription drugs in the short term — because the government can certainly compel companies to sell what they’ve already produced at a loss. But it’s another thing to get them produce new drugs in the future when they know ahead of time there’ll probably be no money it.
According to Vital Transformation, a company that measures impacts of policies on medical technologies, procedures and drug prices, the Trump executive order mandating the most favored nation policy may cost “1.98 to 2.22 million jobs, representing 40 percent of current U.S. jobs in the biopharmaceutical industry, with 472,000 being employed directly and 1.7 million being employed indirectly,” assuming the top 50 drugs by spending in Medicare Parts B and D are impacted by an 85 percent gross price reduction. They found that there would likely be a “loss of $600 billion in federal tax revenue and over $450 billion in state tax revenue” and “a loss of “up to $2.4 trillion in earnings generated by the biopharma sector.”
READ MORE from Eric Peters:
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