Name brand drugs generally cost less abroad because foreign governments forcibly control their prices. So this international price index would effectively import those foreign price controls.
That may sound like a good deal for U.S. consumers. But it would discourage investors from funding research into the next generation of cures by jeopardizing their chances of garnering an adequate return on their money.
Drug research is long and expensive. Developing just one drug takes around 12 years and costs about $2.6 billion. Bringing that same drug to market following approval costs another roughly $300 million.
Drug companies and the investors who fund them bank on blockbuster revenues from successful drugs to recoup those costs. Importing foreign price controls through an international price index would deprive them of those revenues. One analysis found that such a proposal could cut drug companies’ revenues by $500 million or more per year.
Of course, that’s the point. But it would have devastating consequences for future drug research. One RAND study concluded that price controls would cut people’s life expectancies by substantially reducing investment in new drugs. Another analysis found that reducing drug prices by between 40-50% would result in 60% fewer research projects being undertaken.
Americans understandably want relief from high drug prices. But it’s not worth kneecapping medical research to save a few bucks on pharmaceuticals. That’s exactly what the Trump administration’s proposed international price index would do.
Sally C. Pipes is president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The False Promise of Single-Payer Health Care (Encounter). Follow her on Twitter @sallypipes.