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High drug prices in U.S. unrelated to lower prices abroad

Written by Diane Archer

A recent blog post on Health Affairs by Donald Light makes a compelling case that drug prices in other developed countries are generating profits for Pharma and that Pharma would continue its research even if prices in the U.S. were substantially lower. In short, the U.S. pays about 2.4 times the price of other countries for our drugs, as Peter Bach, Nancy Yu and Zachary Helms detail in a separate Health Affairs post. And, high drug prices in the U.S. are unrelated to lower prices abroad.

Light explains that drug prices in the U.S. need not be high–could be the same as what other developed countries pay–and the pharmaceutical industry would still reap profits. There is no foreign “free-rider” issue, as much as the pharmaceutical companies would like people to believe it. Moreover, U.S. government-granted protections for pharmaceutical companies are driving up drug prices without driving meaningful innovation.

Like the U.S., other developed countries pay a price for drugs that covers research and development costs, manufacturing, marketing, and overhead costs, as well as a reasonable profit. Indeed, these countries pay 30-50 times the cost of manufacturing a drug, which is generally tiny. It’s just that they pay less than we do.

If Congress were not influenced by the pharmaceutical industry’s flank of lobbyists and campaign support, we would have an independent agency assessing the value of each new drug pharmaceutical companies bring to market, and drug prices would reflect their value. Instead, Congress gives drug companies monopoly power to set prices on their patented drugs and permits them to gouge taxpayers, federal and state governments, and patients.

If drug prices in the U.S. were lower, pharmaceutical companies are not going to cut back on investing in research, when it is the way they make money. They could more easily cut back on marketing costs, which are two or three times greater than research costs. Moreover, taxpayers pay for most of the research costs. U.S. subsidies and tax credits pay for about 44 percent of all research costs. On top of that, Congress allows taxes on pharmaceutical companies to be lower than they would otherwise be because pharmaceutical companies park their money in foreign tax havens.

Furthermore, pharmaceutical company research should be understood for what it is–largely a way for companies to make profits, through variants of drugs already on the market.  Most of drug company research does not add value. Only about five-10 percent of all pharmaceutical company research on new drugs has any meaningful value over drugs already on the market.

If you want Congress to rein in drug prices, please sign this petition.

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