The May 13 editorial “Curbing out-of-control health-care costs,” which compared the United States with other advanced nations, missed the mark entirely. While the industry has been pushing the “free rider” argument for years, it doesn’t hold up to critical examination. First, plenty of research and development (R&D) and new drug innovation takes place in other countries. The United States is not alone in having a robust pharmaceutical innovation record. It’s true that profits are higher in the United States, but it’s not true that we spend more on R&D as a percent of total budgets.
Second, most other advanced countries negotiate prices based on comparative effectiveness, or whether a new drug works better than existing therapies. The negotiated price has nothing to do with R&D costs, which are sunk, but everything to do with the potential benefit to patients. Research costs constitute an average of almost 20 percent of budgets for U.S. pharmaceutical companies, about the same as profits. They are no more relevant than the cost of development for computers, cellphones or automobiles is to their final prices.
Third, U.S. pharmaceutical companies spend about twice as much on marketing as they do on drug development, something most other countries do not permit in most forms.
It is untrue that other countries are taking advantage of U.S.-based innovation. They are operating as prudent purchasers in rewarding value, not maximizing profits. That’s something the United States could indeed learn and benefit from.
The writer is president and chief executive of the National Coalition on Health Care.