February 05, 2017
It’s not clear that this is what he intended to do in a column that rightly criticized Donald Trump for quickly abandoning his pledge to force drug companies to lower prices, but it is what he did. Pearlstein asserts:
“Because ours is the only country that does not negotiate prices with drug companies, using a national formulary, Americans pay roughly twice what patients in other countries do for the most widely used drugs still under patent. What that means, in effect, is that Americans pay for the 20 percent of drug industry revenue that is invested in researching new drugs, giving the rest of the world a free ride. In exchange for this largesse, a disproportionate share of the high-paying research jobs are located in the United States.”
Pearlstein is asserting that the United States is making its citizens pay more than people elsewhere for their drugs, in effect as a bribe, to get drug companies to locate research jobs in the United States. This is a clear violation of WTO rules and would be quite a news story if Pearlstein has any evidence to back up this assertion.
As a practical matter, we would expect drug companies to locate their research facilities where the cost of the research is lowest. The cost of research is not affected one iota by what a country’s citizens pay for drugs. Most likely the reason most research is located in the United States is the enormous subsidies that the government provides through the National Institutes of Health (NIH). It is not a coincidence that a huge number of biotech companies are located in the Maryland suburbs of Washington, right next to the NIH campus.
It is also absurd to claim, as Pearlstein does, that we give the rest of the world “a free ride.” The rest of the world pays plenty of money to finance the research being done by the pharmaceutical industry. The industry only claims to do $50 billion a year in research spending. They collect well over $500 billion a year in revenue outside of the United States. In effect, Pearlstein is claiming that if the U.S. government decides to hand the pharmaceutical industry another $50 billion a year in profits because of the power of their lobbyists, that other countres are free-riding because they are not equally corrupt.
Of course, serious newspapers would be discussing more efficient alternatives to patent-monopoly supported drug research (see Rigged, chapter 5), but the Washington Post gets considerable advertising revenue from the pharmaceutical industry.
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