The Objective Standard Blog

Tuesday, August 7, 2007

Pharmaceutical Price Controls: A Prescription for Disaster

Posted by ARI Media at 7:06 pm

Irvine, CA—The prices of many U.S.-made prescription drugs are lower in places such as Canada, Australia, and Europe than in the United States. In order to allow Americans to take advantage of these lower prices, the House recently passed a bill that would permit the re-importation of these cheaper drugs to the U.S.

But according to Dr. Yaron Brook, executive director of the Ayn Rand Institute, "The supporters of this measure fail to ask one crucial question: why do prescription drugs cost so much less in other countries?

"The answer is that, unlike the U.S., countries such as Canada impose price controls on prescription drugs, forcing drug companies that want to do business there to sell their products for less than they would in a free market. Drug re-importation schemes, like the one passed by the House, are in effect ‘back-door’ price controls. They enable Americans to buy the foreign price-controlled drugs at a lower price than their U.S. counterparts—just as if the U.S. government itself had capped prescription drug prices.

"But price controls violate the rights of drug makers. Neither the Canadian government nor the American government has a right to tell drug makers what prices they may charge for their products.

"Proponents of prescription drug price controls claim they are necessary in order to protect consumers from ‘excessive’ drug prices. But if a consumer determines that a drug price is ‘excessive,’ he already can protect himself—by refusing to buy the drug. He has no right to buy the drug for less than the drug company is willing to sell it, anymore than he has a right to buy a car for less than a car dealer is willing to charge.

"Indeed, the ultimate result of forcing drug makers to offer their products for less is to ensure that fewer such products are available. As with any commodity, price controls lead inevitably to shortages, as it becomes unprofitable for companies to produce enough drugs to meet the rising demand created by the artificially low price. And such controls hamper the creation of new life-saving medicines, as drug companies find it less profitable to invest the millions upon millions of dollars necessary to discover new drugs and bring them to the market.

"The sole reason Canada has been able to institute its price controls without severely hampering the discovery and production of prescription drugs is because it is ‘free riding’ on the backs of Americans. It is only because the American market is free from price controls that drug companies are able to recoup their enormous R&D costs, and thus find it profitable to sell additional units of the drugs at a lower cost in other, price-controlled countries. Should America impose price controls either directly or by proxy, the house of cards will collapse.

"We should protect the rights of pharmaceutical companies—and the welfare of consumers—and demand an end to price controls, direct and indirect."

Copyright © 2007 Ayn Rand® Institute. All rights reserved.

Posted in: Business and Economics, Healthcare, Individual Rights and Law