Wednesday, November 15, 2006

No Such Thing as a Free Drug

Marginal Revolution links to an NBER paper that compares the pharmaceutical industry in Europe to the pharmaceutical industry in the US. In Europe, phramaceutical prices are regulated by the government and are therefore lower. An unsurprising consequence:
Results show that EU consumers enjoyed much lower pharmaceutical price inflation, however, at a cost of 46 fewer new medicines introduced by EU firms and 1680 fewer EU research jobs.
The abstract of the article also discusses how US firms spend 15% more on research and development than European pharmaceutical companies.

The main point is not that the regulations are bad necessarily (you then get into an equity vs. efficiency argument), but that you can't lower prices on drugs without knowing that this action will have negative consequences somewhere else.


Anonymous said...

Well first of all I think it's astounding how much money the US spends on healthcare and pharmaceuticals...over $94 billion, compared to Europe's slowly growing %3.7 billion. The point is, is that the US spends so much time and money on drugs that it's opportunities for research jobs and new, improved phramaceuticals has drastically increased. Not only that but life expectancy and general health has increased. According to Dr. Thomas Boehm of Jerini,"the United States, compared with Europe, is wealthier, more competitive, more meritocratic and more tolerant of waste and chaos." This would explain why Europe has fewer reserch jobs and new drugs. Because Europe allocates it's money and resources into other organizations, they don't have as many medical discoveries or advancements as the US. Showing how not investing into healthcare can effect important outlets such as life expectancy and general sickness.

-John Schmidt

Anonymous said...

I agree with John. Europe has almost twice the population of the United States and for them to spend only 3.9% of what we do. I think that the pharmaceutical companies are not losing out at all. Even though they are spending 15% more on research and development, their profits are much more than 15% of that of Europe. I think that the drug companies should price discriminate more in Europe. In the United States we have private health care, so most people pay different prices already, depending on what kind of insurgence plan they have. Some countries in Europe have socialized medicine so the governments are going to be less willing than a private firm to pay a lot for a drugs so if that drug will not be profitable with that lower price, they will not introduce it in that market.

- Brian Meier

Anonymous said...

Due to the price ceiling set by European governments, there are less firms in the pharmacudical market because there is not as much room for profits. Since less firms are in the industry this also means that there is less competition and less motivation to develope new and improved medicines. Although the US is spending so much more in the medical field, they are also discovering more medicines.
-chris G.