- The Washington Times - Friday, December 8, 2000

Contrary to popular belief, the price of drugs, at least legal prescription drugs available within the United States, grew at a rate only slightly greater than inflation throughout the 1990s. Although spending on pharmaceuticals increased by almost 14 percent annually between 1995 and 1999, more than 11 percent of the growth was due to increased volume and new products, according to the Institute for Policy Innovation (IPI).

Prices on pharmaceuticals vary for a variety of reasons just like those of other consumables, ranging from Game Boys to Big Macs. Moreover, the prices of pharmaceuticals are distorted by patents, which create barriers to the entry of pharmaceuticals, and insurance, which insulates consumers from the true cost of pharmaceuticals. Despite these disturbances, Patricia Danzon, the Celia Z. Moh professor at the Wharton School, pointed out that if drug prices are weighted on frequency of use, U.S. consumers actually pay 3 percent less for a given drug than their Canadian counterparts. Overall, Ms. Danzon found that the prices of drugs in the United States are a long way from being the highest in the industrialized world.

Moreover, in other countries where pharmaceutical prices are controlled by government mandate, drugs may be unavailable. On average, the Canadian government takes 13 percent longer to approve drugs than the United States, and some drugs available to U.S. citizens may not be available to their Canadian counterparts.

Price controls also stymie research and development. This year, the United States will spend almost $23 billion on research and development to produce 45 percent of the world's new drugs. France, which has a draconian price-control system, contributes only 4 percent of the world's new drugs. Pharmaceutical companies are willing to spend an estimated $500 million to develop each new drug because they believe it will be profitable.

The bottom line remains the bottom line: Pharmaceutical companies would not be spending billions of dollars on research and development and advertising unless there was a billion-dollar drug market. Congress should be careful that any efforts to reduce drug prices do not come at a high cost to consumers.

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