Medical drugs: Many complaints, few answers

Thomas Sowell

Reader responses to the discussion of government-controlled medical care in this column raised questions that need answering. The most frequently raised question was why American pharmaceutical drugs sell for less in other countries.
Some readers considered this proof that the sellers of these drugs were making excessive profits. They argued that, since the companies were obviously making profits when they sold their drugs in Canada, they must be making super-profits when they sold the same drugs for higher prices in the United States.
Other readers, however, understood that Canadians and Americans were covering different costs. The Canadian government, ordering drugs for a whole medical care system, could make a take-it-or-leave-it offer that would cover the manufacturing costs, while Americans were left paying prices that cover the much higher costs of creating the drug in the first place.
If the drug company turned down the Canadian government’s offer, both the company and American consumers would be worse off. Whatever the Canadian price contributed to company earnings, over and above the manufacturing costs, reduced the need to raise American prices still higher to cover the full costs of creating the drug — which are hundreds of millions of dollars per drug.
Ultimately, both the research costs and the manufacturing costs have to be covered if new drugs are to continue to be developed. But, once a drug is in existence, any government-run medical system can take advantage by offering to cover only the manufacturing costs.
After all, seldom is one drug the only treatment for a given condition. Even if it were, a sovereign nation could simply disregard American patents and authorize its own pharmaceutical companies to copy the formula. With one buyer and many potential sellers, the deck is stacked.
Many readers thought this unfairness should be stopped. But none had any idea for a viable plan to stop it. Neither do I.
Those who think the answer to all problems is to pass a law want the American government to control drug prices, in the name of fairness among countries. But none of those who suggested this weighed the costs against the benefits. Turning drug prices into a political football is solving one problem by creating a bigger problem.
The crucial thing is to keep new drugs coming. Price controls can mean a lot of needless suffering and premature deaths if the supply of new drugs slows or stops. That has already happened under price controls in other countries, which is why they have to rely on American discoveries. If we follow in their footsteps, who will be left to rely on?
Some of the other things that readers complained of were simply red herrings that demagogues had used to whip up emotions.
Some readers complained of the high salaries earned by people who head up pharmaceutical companies. But if a megabucks CEO were to agree to work for nothing, it would probably not make enough difference to reduce the cost of a one dollar pill to 99 cents. There are too many people who think they know what other people should be paid.
Then there are the chronic complaints that pharmaceutical companies spend too much money on advertising. Most of the people who make this charge have neither expertise nor experience in either pharmaceutical drugs or in advertising. This must be the golden age of presumptuous ignorance.
There is nothing like a drought to make us understand the value of water and nothing like blackouts to make us understand the importance of electricity. Maybe it is worth looking at what happens when the benefits of a medication are not advertised.

Thomas Sowell writes for Creators Syndicate. His Web site is: www.tsowell.com