Almost every night there is a story on the national news about the high cost of prescription drugs and how senior citizens are hurt the most because they don’t have any insurance coverage and how much cheaper the prices are in Canada and Mexico.
Some activist are pushing for price controls in the U.S. so our drug costs would be low like the other North American countries. But the counter to that is that the drug companies would quit or reduce their R&D spending if their was no promise of big profits for the next wonder-drug they invent.
To me, this sounds like the U.S. is expected to bankroll all of the R&D and Canada and Mexico are getting a free ride.
Question #1: Why doesn’t Congress pass legislation that prohibits drug companies from wholesaling prescription drugs in the U.S. for more than the lowest price the same drugs are wholesaled in other countries? This would signal an effort to pay our fair share of the R&D costs but not our willingness to pay more than our share.
Question #2: We here in the U.S. often hear how cheap prescription drugs are in Canada because of price controls. What about other countries and their prescription drug prices and controls?
Answer to Q#1: The drug companies try to price their products in each country at whatever level the market will bear. (Actually, they even price within countries at what particular markets will bear). This maximizes the drug company’s return on investment. It also makes it possible for most people to get the drugs they need. If they couldn’t sell a drug anywhere for less than the U.S. price, and kept their U.S. price relatively high, their sales volume would decrease because some countries would be priced out of the market. If sales volume went down, there would be fewer people contributing to R&D which would mean that people in the U.S. would have to pick up an even larger share of the R&D tab. (It would also mean that fewer people would be able to benefit from the drug.) OTOH, if the drug company’s dropped the U.S. to some relatively low world market price, their sales volume would be great and almost everybody could benefit fromj the drug, but they would have to lay off a lot of their R&D staff.
I think it might be useful to think of drug pricing the same way you think of airline seat priciing. The stategy is to segment the market into people with different combinations of need and ability to pay so that the you can gouge the most out of people who really need to travel and have big bucks but you can still squeeze a few pennies out of the people would have otherwise taken the bus.