Pharmaceuticals: understanding your solution set


There's an old adage variously attributed to chefs and engineers: "Good. Fast. Cheap. Pick two."

This does not hold all the time, of course; strawberries in season are fast, cheap, and divine. On the other hand, if it doesn't happy to be July, you have to wait months. So usually, the adage holds: you cannot have everything. You have to choose.

A lot of people in my comment threads on pharma are saying "Well, okay, maybe if we forced the drug prices so far down, that would kill off innovation. But it's not fair that Europe is free riding. We need to find some way to force them to Pay Their Fair Share." Interestingly, many of them seem to be conservatives, the same people who applaud when I say, in re other policy issues, that the fact that there is a problem does not automatically imply that there is also a solution.

No one who is a serious policy wonk on this stuff has any sort of workable proposal whereby America persuades Europe to pay more for its drugs. We have no leverage to do so. European governments have extraordinarily strong financial and political incentives to keep the costs of drugs down. Our trade relationship is not exactly harmonious right now. And we cannot forbid pharmaceutical companies to sell into those nations at discount prices, because those countries can break the patents and license generic manufacturers to manufacture the drugs. All we would end up doing is removing a small source of profit from the pharma company's books. This threat seems to be the most plausible reason that Pharma is still selling to Canada at heavily discounted prices, even though this costs them a fair amount of money in the US market. We have the legal ability to force American prices down to European levels. We do not have any way to force their prices up to ours. The fact that you are animated by an angry passion does not magically conjure up a solution out of nowhere.

As your mother repeatedly told you, the only person whose behavior you can control is your own. Screwing up our pharmaceutical industry because it's so damn unfair that Europe gets the benefit too is cutting off our noses to spite our faces, as long as we're still getting good value for money. As anyone, including me, who is taking a newly invented drug will tell you, we're getting pretty good value for money. (And if you're not getting good value for money, you can just not take the drug! Problem solved.)

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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