American lawmakers are threatening to impose price controls on prescription drugs, and it’s not hard to see why. We Canadians, like others outside the US, get our drugs at bargain prices – and at the expense of the American consumer, who pays full freight and then some. Americans are fed up with free riders and deserve a break.
But there is no way to service the vehicle when everyone rides for free. US price controls might benefit consumers in the short term, but at the cost of killing innovation. The only solution is for Canada and other countries to step up and accept their fair share of the cost.
The Patented Medicine Prices Review Board administers Canada’s price controls, forcing drug manufacturers to sell at a deep discount. Patented drug prices in the US are almost 3.5 times higher than in Canada. Even so, Canadian prices are among the highest in the Organization for Economic Co-operation and Development – but all non-US members of the OECD’s 38 countries group well below America in a narrow price range.
Consumers outside of America are paying a price as new drugs come to market more slowly, if at all. At any given time, US pharmacies can sell about 90% of available patented drugs, compared to about 47% in price-controlled countries (this number is slightly higher, 65%, in Canada).
Price controls depress investment in research and development. Of 56 countries ranked by their contributions to global pharmaceutical innovation, the US ranks first while Canada is 27th. Everyone benefits from a profitable pharmaceutical industry, because expenditure on research and development increases in proportion to profits. More research and development means more new drugs, more years of life and health, and less spending on expensive non-pharmaceutical treatments. But the pharmaceutical industry is not particularly profitable. Automotive, financial services, information technology and other industries have far higher returns on equity.
Robbed of their revenue by price controls, pharmaceutical companies find them where they can – in the US. The American consumer pays high prices to support research and development that benefits the world. The US invests 44% of the world’s drug R&D budget and produces the largest share of patented drugs, accounting for about 40% of the world’s patented drugs at any given time.
If a country exports a product at a subsidized price below the market price to benefit its own producers, it could face a dumping complaint with the World Trade Organization. Trade law has no remedy against price controls by importing countries. But the US could make a proportionate price reduction for the US consumer in return for allowing other nations to import their innovative drugs. It could levy export charges equal to some or all of the lost wholesale prices resulting from price controls.
In order to lower prices again, countries with price controls would have to band together to achieve a fair sharing of price increases in their more open markets. The US could also persuade foreign drugmakers to support local price reforms by introducing a rule mandating that no drug be sold in the US for more than it is sold in its export sovereignty.
The cost of low drug prices is high for everyone. It is estimated that the number of new medicines developed would increase by 9-12% by 2030 if OECD countries lifted their price controls. This could increase the life expectancy of today’s 15-year-olds by up to 1.6 years. A price increase of just 20% in price-controlled European countries would result in $17.5 trillion in welfare gains for the US and Europe alike.
The world desperately needs international drug pricing reform, but there is a problem with collective action. The cost for Canada, or any other individual nation, to reverse price controls would be prohibitive. However, if nations act together, the pressure on the US market could be eased and price increases in local markets could be managed. Canada and other OECD countries are not poor. It’s time for us to pay our share.
Mr. Owens, a retired attorney, is a senior fellow at the Macdonald-Laurier Institute in Ottawa.
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https://www.wsj.com/articles/canada-should-pay-more-for-medications-price-controls-oecd-innovation-prescription-drugs-revenue-prices-pharmaceuticals-11658084406 Why Canada Should Pay More for Medications