A Possible Future: Prescription Drug Disaster

I recently blogged about how generic drug prices are soaring in Canada.

The flip-side of this is that brand-name drugs are of course cheaper in other countries like Canada. Here is a great ARI item that explains why that is. The crucial question is "Why?" and the answer is price controls in such countries. But the only reason this doesn't cripple the R&D efforts of drug companies -- and hence their ability to create new, life-improving and life-saving drugs -- is that people in countries like Canada free-ride on the prices paid by Americans. Creating drugs is extremely expensive: not only is the R&D rightly expensive and time-consuming, but it is made much worse because of the onerous regulation of the FDA and other government bodies. Other major costs include advertising/marketing to get the word out about new or improved drugs to doctors and patients.

This ARI item gives voice to a pro-consumer argument that you will hear almost nowhere else, as it ends as follows:

It is only because the American market is free from price controls that drug companies are able to recoup their enormous R&D costs, and thus find it profitable to sell additional units of the drugs at a lower cost in other, price-controlled countries. Should America impose price controls either directly or by proxy, the house of cards will collapse. We should protect the rights of pharmaceutical companies--and the welfare of consumers--and demand an end to price controls, direct and indirect.