# High-cost vs. low-cost drugs -- how are the decisions made in countries with nationalized medicine?

**URL:** <https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140>\
**Category:** Factual Questions\
**Created:** [June 8, 2009, 8:24pm UTC](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140 "2009-06-08T20:24:20Z")\
**Posts on this page:** 8\
**Page:** 2

<div class="post-metadata">

**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\
**Post date:** [June 10, 2009, 5:02pm UTC](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140/21 "2009-06-10T17:02:55Z")

</div>

> [@Harriet\_the\_Spry](#):
>
> I agree that the location of the research is somewhat immaterial, but I disagree that the high prices paid in the US are immaterial. I also disagree that those high prices are “of the free market.” The high prices are due to the time-limited monopoly granted through the patent system, intentionally taking something other than a free market approach. The patent system and its accompanying monopolies are how the US incents companies to innovate. A free market would bring prices down and reduce the incentive to conduct research. It might be better to have the lower prices and provide more direct government incentives for research (or to accept a lower level of research), but that is a difficult policy question.

But that’s not how the argument is usually presented by Americans against Nationalized Health Care. They don’t say “Medication prices in the US are high because of the patents the pharma companies hold”. They say “Prices are higher in the US not because the current Health system is fucked up and allows companies to charge too high, but because the US companies do the research for the rest of the world, and if medicine in the US is socalized with a fixed price for medicine, then the US companies would stop their research and prices in European and other countries with socalized health care would rise”.

Besides, the argument that the higher US prices are because of the patent system is also obviously false. Do you seriously mean to argue that the other western countries don’t recognize US patents? Really? If American pharma company A produces medication X and owns a patent, every other company who uses that formula pays the fee to company A, until the patent runs out and generics are possible. Or the companies import medication X from the US directly. No, the high prices are not because of the patent system.

Or did you not notice the uproar when the US govt. tried to forbid African countries from using re-designed AIDS medicine, because it violated the patents of US companies? After the outcry from the public - since part of the research leading to those drugs had been sponsored by the govt. in govt. labs in an effort to combat a deadly international disease; and thus the effort of govt. officials to help a few rich companies really hurt PR - the companies decided to stop and instead generously donate a couple of boxes to fight AIDS in Africa.  
Today, the PR departments present themselves as fighting re-designed drugs from Southeast asia not because they are money-grubbing rich bastards, but because they are concerned about lack of quality (which is a real problem, even in western countries - safe guards like holograms have been added recently to make sure that the drug you buy in the apothecary contains the real thing made under hygienic conditions in a proper factory, and not flour and starch, or rat poision, mixed up in some back alley and packaged in an empty original carton.)

> [@](#):
>
> This is relevant to the OP because high drug prices reflect not only the cost of producing a specific drug but also a policy decision about how research is funded. These systems interact and changes in one area will affect the other.

And even in the US, not only the pharma companies do research for their own profit, but also the government sponsors some research that’s important. Just like in Europe. In Europe, the pharma companies aren’t socalized, they can choose under what terms they want to sell their drugs. And package deals with a few million customers for one public insurance is a better deal than each patient paying the normal price.

---

<div class="post-metadata">

**Author:** ![Harriet\_the\_Spry](https://avatars.discourse-cdn.com/v4/letter/h/e56c9b/32.png) [@Harriet\_the\_Spry](https://boards.straightdope.com/u/Harriet_the_Spry)\
**Post date:** [June 10, 2009, 5:43pm UTC](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140/22 "2009-06-10T17:43:05Z")

</div>

> [@constanze](#):
>
> But that’s not how the argument is usually presented …

I’m interested in informing the discussion, not arguing against people you’ve encountered previously.

> [@constanze](#):
>
> Do you seriously mean to argue that the other western countries don’t recognize US patents?

Obviously not. The monopoly power and accompanying profits that the pharma companies get depends on recognition of their patents.

> [@constanze](#):
>
> No, the high prices are not because of the patent system.

They are in part. The low prices in other countries are largely due to their monopsony power, as noted earlier, and high prices in all locations depend on intellectual property rights. None of this has anything to do with a \*free \*market. It’s a situation of imperfect and heavily regulated markets all around.

> [@constanze](#):
>
> And even in the US, not only the pharma companies do research for their own profit, but also the government sponsors some research that’s important.

And the US government [translation: taxpayers] could fund more research, and would have to, to sustain the current level of research if it, too, exercised monopsony power (or limited intellectual property rights, creating a freer market) and reduced prices and profits. If returns were reduced in US pharma, capital and R&D investment would shift to other industries–green energy, Hollywood, wherever.

> [@constanze](#):
>
> And package deals with a few million customers for one public insurance is a better deal than each patient paying the normal price.

Assuming you mean better for the patients/ taxpayers, this is monopsony power.

I don’t know whether prices would go up in Europe. Prices are largely based on willingness to pay, so the elimination of profits in the US seems more likely to lead firms to exit the market than to charge Europeans higher prices. Presumably if pharma companies could charge higher prices in Europe, they’d already be doing it.

Rhetorical question: Do European pharma companies develop products for the US market? Do those profits influence their R&D decisions?

There are lots of good arguments for reform of the US healthcare system, but denying that it is likely to lead to reduced research isn’t justified or necessary.

Relevance to the OP: As amply demonstrated upthread, healthcare reform doesn’t necessarily mean denial of expensive prescriptions, at least not worse than what we have now with private insurance companies. But something to consider is that the next breakthrough treatment might come a little slower, or need more taxpayer or charity funding.

---

<div class="post-metadata">

**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\
**Post date:** [June 10, 2009, 11:15pm UTC](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140/23 "2009-06-10T23:15:35Z")

</div>

> [@Harriet\_the\_Spry](#):
>
> They are in part. The low prices in other countries are largely due to their monopsony power, as noted earlier, and high prices in all locations depend on intellectual property rights. None of this has anything to do with a \*free \*market. It’s a situation of imperfect and heavily regulated markets all around.

Only that we don’t have a monopsony in Germany, at least as wikipedia defines it

> [@](#):
>
> A single-payer health care system, in which the government is the only “buyer” of healthcare services, is an example of a monopsony.

, because we don’t have a single-payer system (that’s why I linked to articles explaining the German system.) We have several indepenent public health insurances, plus the private ones, and prices were low. (The reform by the state is a very recent trend, and I would have to do more research on what exactly was the scope of the deal).

I don’t know enough details about the other European countries, but if they all have lower prices for medication (and lower Health expenses overall) than the US, despite the many differences between each country, then I don’t believe it’s because of over-regulation or imperfect system here, but rather the problem with the pharma market in the US.

However, from what I’ve read, the market in the US is not heavily regulated, but rather, the pharma companies can play all the different health insurance companies with different rates against each other.

> [@](#):
>
> And the US government [translation: taxpayers] could fund more research, and would have to, to sustain the current level of research if it, too, exercised monopsony power (or limited intellectual property rights, creating a freer market) and reduced prices and profits. If returns were reduced in US pharma, capital and R&D investment would shift to other industries–green energy, Hollywood, wherever.

First you would have to show that the increased profits that the US pharma companies make compared to the European companies are actually spent on Research, and not given to the managers or the shareholders. And you would have to show that the lower prices are the result of monopsony and not other factors, because you simply claim that monopsony is at work.  
And you would have to show that the research being done by the pharma companies isn’t for the 50th headache pill, or a simple change in filler ingredients in order to extend an existing patent by claiming a “new” formula, but for the real diseases like cancer or heart problems.

> [@](#):
>
> Assuming you mean better for the patients/ taxpayers, this is monopsony power.

Again, the pharma companies are free to choose to enter the contract or not, it’s not socialized, and the companies aren’t disowned by the govt. It also means that the pharma companies know they will sell large quantities of the drugs in the contract.

> [@](#):
>
> Rhetorical question: Do European pharma companies develop products for the US market? Do those profits influence their R&D decisions?

I don’t know what decides which products European pharma companies develop, but my guess is that they develop drugs against diseases, not for countries. Some diseases may be perceived as more prevalent in one country than in another. Some diseases may be perceived as being better treated with natural means than with drugs in one country than in another. I assume that influences more the marketing than general research. Presumably it influences the decision to do research against disease X in the country where people perceive it as big problem, although another factor for decision could be the infrastructure for research being better in another country.

> [@](#):
>
> There are lots of good arguments for reform of the US healthcare system, but denying that it is likely to lead to reduced research isn’t justified or necessary.

First you have to prove that the current system is one of higher research than elsewhere, before you can claim that lower prices would lead to reduced research.

---

<div class="post-metadata">

**Author:** ![Broomstick](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/broomstick/32/246_2.png) [@Broomstick](https://boards.straightdope.com/u/Broomstick)\
**Post date:** [June 10, 2009, 11:21pm UTC](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140/24 "2009-06-10T23:21:56Z")

</div>

> [@constanze](#):
>
> First you would have to show that the increased profits that the US pharma companies make compared to the European companies are actually spent on Research, and not given to the managers or the shareholders.

Or advertising. Don’t forget, in the US pharmaceutical companies can and do advertise directly to consumers in all media - TV, radio, internet, print… It’s quite a big chunk of money.

---

<div class="post-metadata">

**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\
**Post date:** [June 11, 2009, 2:26am UTC](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140/25 "2009-06-11T02:26:47Z")

</div>

> [@constanze](#):
>
> Oh, and can we please stop that myth that medications are cheaper elsewhere because the research is done in the US, and if the US stopped paying the high prices of the free market, prices would rise in other countries? There are several pharma companies with research (aside from the research done at Universities) in non-US countries like Europe, you know.

But as long as these companies are selling in the US, at US prices, the pricing effect is the same as for US pharma companies. It’s not an issue of where they do their research, it’s where they make their money.

---

<div class="post-metadata">

**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\
**Post date:** [June 11, 2009, 4:39pm UTC](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140/26 "2009-06-11T16:39:25Z")

</div>

> [@Broomstick](#):
>
> Or advertising. Don’t forget, in the US pharmaceutical companies can and do advertise directly to consumers in all media - TV, radio, internet, print… It’s quite a big chunk of money.

Are you talking about Over-the-counter OTC medicine, that is available without prescription, or real medicine? Because in Germany, Bayer and ratiopharm and similar companies do advertise on TV for headache pills, cold and allergy medicine and similar. But not for serious cancer or rheumatoid medicine or similar.  
Adverts are also regulated to some degree, for example, direct comparision between two companies are forbidden.

---

<div class="post-metadata">

**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\
**Post date:** [June 11, 2009, 4:44pm UTC](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140/27 "2009-06-11T16:44:46Z")

</div>

> [@Tom\_Tildrum](#):
>
> But as long as these companies are selling in the US, at US prices, the pricing effect is the same as for US pharma companies. It’s not an issue of where they do their research, it’s where they make their money.

Um, no. The argument is “The higher US prices pay for research, if prices were lowered, research would stop”. If research is being done elsewhere for other markets, then lower US prices won’t stop research.

It’s similar to the European market - because prices of living are lower in eastern Europe, the same OTC medication is sold there for a cheaper price, so people can afford it and actually buy it. Research done back in Western Europe isn’t affected by that.

---

<div class="post-metadata">

**Author:** ![Broomstick](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/broomstick/32/246_2.png) [@Broomstick](https://boards.straightdope.com/u/Broomstick)\
**Post date:** [June 11, 2009, 4:47pm UTC](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140/28 "2009-06-11T16:47:49Z")

</div>

> [@constanze](#):
>
> Are you talking about Over-the-counter OTC medicine, that is available without prescription, or real medicine? Because in Germany, Bayer and ratiopharm and similar companies do advertise on TV for headache pills, cold and allergy medicine and similar. But not for serious cancer or rheumatoid medicine or similar.

Real medicine.

Since it was decreed that direct-to-consumer advertising was legal in the US the various media have blasted all sorts of ads regarding prescription-only medications for everything from toenail fungus to cancer.

[Previous page](https://boards.straightdope.com/t/high-cost-vs-low-cost-drugs-how-are-the-decisions-made-in-countries-with-nationalized-medicine/499140.md?page=1)