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An estimated 8.2 percent of adults in the United States cannot afford their prescription medications — which is a pretty high number, especially considering that we are talking about a pool of people who were able to afford to see a doctor in the first place.
Does that sound like a good thing to you? I’m going to assume it does not. But you know who does love that? The Wall Street Journal, or at least two fellas who wrote an op-ed for The Wall Street Journal titled “Be Thankful For High Drug Prices” (gift link maybe!) and subtitled “If Americans weren’t overcharged, we wouldn’t have innovative treatments.”
Now, we all know where this one is going, right? It’s going directly to the long-debunked place of “they need to overcharge us in order to fund “research and development” for new drugs. It’s actually been a while since I’ve heard that one, probably because it’s been well-known for so long now that this is not the case. But David R. Henderson and Charles L. Hooper are bringing it back and somehow making it more repulsive than ever. Their argument is literally that Americans have to pay more because other countries won’t pay more.
Oh boy!
Almost all new drugs are developed for the U.S. market, no matter where the company’s headquarters are. Why? America is a large, rich country with an advanced medical system. America’s gross domestic product per capita is 65% higher than Britain’s, 57% higher than Germany’s and 87% higher than France’s. There are four Americans for every German and nine Americans for every Canadian. We have many wealthy people.
That may be true. However, the poverty rate (as of 2022) in the UK is 11.7 percent, Germany’s is 11.6 percent and in France it is 8.5.
In the US? 18 percent. Out of all 38 OECD nations, only Costa Rica (at 21 percent) has a higher poverty rate than we do. So we may have a lot of rich people, but we also have a far higher percentage and number of poor people. And because of things like “no universal health care” and “super expensive prescriptions,” some might even say that our poor are worse off than the poor in other nations. Or they might say that because the only OECD nation with a larger poverty gap than we have is Romania.
But go off!
While far from a free market, our medical system is freer than in many other nations. Countries with single-payer systems often take one to two years to negotiate the price of a new drug. If a patent is granted for 20 years but the first 13 years are dedicated to development and approval, then only seven years of patent-protected sales remain. If two years are added to that timeline for reimbursement negotiations, the interval drops to five years.
No, it does not take one to two years for drugs to go on the market in these countries. First of all, Germany, Denmark and several others have a thing called “free pricing” that allows the pharmaceutical companies to sell their products for the price they want to charge for a certain amount of time while negotiations are taking place.
The only country, in fact, where it can take up to two years for something to get approved is Portugal, a tiny country with one of the best “population health” outcomes in the world.
So, just to recap so far — these countries have lower poverty rates, less expensive prescription drugs and better health care outcomes than the US.
If new drugs can make it in America, they are developed. If they can’t, they aren’t. Other countries are considered secondarily. They are the cherry on top; we’re the sundae.
Oh, don’t we feel special! Like pharmaceutical companies are tailoring things just for us. So what if our health outcomes are still worse than all of these other nations? It’s couture, dahling!
While only 4% of the world’s population, the U.S. often accounts for half or more of worldwide revenue for a new drug. The cancer-fighting drug Keytruda was Merck’s top-selling product in 2022, generating sales revenue of approximately $20.9 billion. Around 60% of Keytruda sales were in the U.S. In the U.S., we pay for drug research and development while other countries free-ride on our investments.
This is the worst possible example to make this particular point, because this drug was developed with our tax money and is now entirely unaffordable for most people here who need it. How unaffordable? $150,000 – $200,000 unaffordable.
Oh! And Merck has avoided paying billions of dollars in taxes themselves by offshoring Keytruda profits. But let’s hear more of what these Journal fellows somehow thinks makes their case instead of hitting it with a ball peen hammer.
Why do other advanced countries get their drugs more cheaply? They have monopsonistic government agencies that negotiate drug prices with the attitude that if they can’t get it cheaply, their citizens will do without.
Except they don’t do without! Why? Because pharmaceutical companies would rather sell drugs than not sell drugs. Indeed, European countries have so much leverage over pharmaceutical companies that they successfully got them to stop providing lethal injection drugs to us. If we had the power in this situation, that would not be the case.
Pharmaceutical companies go along with this because drugs have high upfront costs and relatively low incremental costs. After those upfront costs are paid by someone, drug companies decide that the extra revenue, perhaps from Canada, covers incremental costs and is better than nothing. Drug companies would prefer that everyone pay the high price, but they have little control over the situation. If the price is too low in Canada, the company won’t launch there. Sometimes, a drug company must accept Canada’s low price or grant a compulsory license to a producer of a generic version, even though the patent is still in force.
After those upfront costs are paid by “someone,” how will these poor drug companies even live when they can’t pay out even higher CEO salaries and dividends and spend even more on advertising because Canada doesn’t care if their citizens can afford life-saving medications or not.
Americans should be free to purchase drugs from any willing pharmacist, even those in Canada. But don’t expect that to move the needle. Canada’s government is likely to restrict exports so that American buyers don’t scarf up all the drugs. In 2020 Canadian Minister of Health Patricia Hajdu ordered companies not to export any drugs if those sales would create or worsen shortages in Canada.
They shouldn’t. If Americans want low-priced drugs like Canada, we should have a health care system and negotiations like Canada.
Capitalized drug development and approval costs have increased at 7.5% a year in real terms since the mid-1970s, when the cost to develop a new drug and secure FDA approval was estimated at $179 million. It has now certainly surpassed $6 billion. Most drugs are less expensive to develop, but the $6 billion figure accounts for the “dry holes” (about 82% of drugs that pass preclinical testing still fail in clinical trials) and the time value of the money spent many years ago. This amount doesn’t account for post-approval clinical trials that the FDA often requires.
This would be a totally reasonable argument if we were not already paying for these drugs to be developed with our tax money, or if that money were actually going to research and development, which it is not.
Via Truthout:
According to the data crunched by the [House Oversight and Reform Committee] the 14 largest drug manufacturers paid themselves and investors $578 billion from 2016 to 2020 through dividends and stock buybacks, while investing $56 billion less — $522 billion — on research and development.
On top of that, the report says, some of that R&D money is spent researching ways to suppress competition, such as by filing hundreds of new, minor patents on older drugs that make it harder to produce generics.
Whoops!
But don’t think that Messrs. Henderson and Hooper have not considered the fact that Americans have worse health outcomes despite this overpaying. They have, but they have come to the conclusion that it is their own damn fault.
Longevity is highly correlated with drug R&D. Columbia University economist Frank Lichtenberg has found that modern drugs were associated with 73% of the increase in life expectancy that we’ve enjoyed in the last few decades.
Some people claim that the American medical system isn’t very good because American life expectancy isn’t top tier. But as we know, Americans aren’t always models of health, moderation and safety.
I don’t know, I kind of think being able to afford a trip to the doctor and lifesaving cancer medication might help with that as well. I also kind of think that our steadfast insistence that health is something for rich people to enjoy and to turn a profit off of may contribute to Americans caring less about their own health in general.
No one in this country is happy that Americans pay for drug R&D while the rest of the world free-rides off our investment. But we don’t run the world. If we try to free-ride too, there won’t be a ride. When we look at our situation as it is, not how we wish it were, we can see what a good investment drug R&D is and how cheap-drug schemes such as importing drugs from Canada and “negotiating” Medicare drug prices generally won’t work. If they do, we’ll wish they hadn’t.
So basically what they are saying is that Americans have to pay more for drugs in order to subsidize other countries where people aren’t total suckers. Nice!
Sure, it is possible that if we demand to not be bled dry by greedy pharmaceutical companies that they will all teach us a lesson by shutting down and not letting us have any new drugs ever again — but that is pretty unlikely. There would still profit to be made, just not outlandish profit at our expense.
Elizabeth Warren has previously called for the US government to start manufacturing generic prescription drugs. It would actually not be impossible for us to cut private pharmaceutical companies out of the game entirely, given how much of the research and development our tax dollars already fund.
I’m sure that if we gave them these pharmaceutical companies the choice of not profiting as much or not existing at all, they’d gladly choose the former.
This week, there were layoffs on the (excellent) news side at The Wall Street Journal, despite healthy profits for the company. The opinion side has never let the news side get in the way of its absolute nonsense, and it’s certain they wouldn’t have in this case either. The Wall Street Journal has chosen its way, and it’s this bullshit.
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