Opinion: There’s a high cost to making drugs more affordable for Americans
By Megan McArdle Megan McArdle Columnist Bio Follow Columnist May 7 at 9:36 AM Americans’ outrage about prescription-drug prices is odd, in a way. Drugs account for less than 10 percent of the nation’s overall health-care spending, and while the price of some medicines has spiked, overall spending on prescription drugs has grown more slowly than broader health-care expenditures. In 2017, the increase didn’t even keep up with inflation .
And yet Americans arguably get a pretty good deal from all this overspending: new drugs. The oversize profits that pharmaceutical companies collect in the United States encourage them to do lots of research and development in the hope of earning more of those sweet, sweet returns. The rest of the world essentially free-rides on Americans’ willingness to pay more.
The advocates’ solution is simple, appealing and wrong. It fundamentally misunderstands the nature of the drug-pricing issue, which is not a budget problem, but an investment problem. You’re a wise and careful person, so you calculate your likely expenses and how much you can charge for your tender young lambs. The math says sheep-farming will offer you a tidy little living. But just as you’re about to commit, the government announces price controls on lamb, which will eliminate your profits. Do you still open the sheep farm?
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