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Saturday, February 04, 2006

A Way to Reduce Health Care Costs

A couple of weeks ago, I posted in "Health Care Follies" about Robert Samuelson's op-ed piece in the Washington Post on the subject of cost of health care in the US.

A writer in the letters section today wants an explaination of why US health care costs are higher than others:
Mr. Samuelson should explain why our health costs are twice as high as comparable health care in other developed countries. The real "myth" is that we are getting the health care we deserve for the price we pay.

The answer is easy, but the writer of that letter won't like it. We are subsidizing their health care systems. Not through direct payments to their governmentments, but through the price we pay for prescription drugs, and newer treatment methods.

For instance, finding an open MRI machine in Canada is pretty tough. The first was used in that country 3 weeks ago in Calgary. We've had them here for quite a few years. That one is in a private clinic that charges $700/scan.

Try and get an ACE inhibitor heart drug in France. They are few and far between because the country's political/medical establishment doesn't feel they are necessary. 90% of heart patients don't get them in France, 90% do in the US. Estimates from Pacific Research Institute say 16,000 French died because of the lack of those drugs from the mid 90's to 2000.

The price we pay is that the US is the only major industrialized country where a drug maker can recover the R&D costs on new drugs. The EU and Canada use a formula where their own government controlled prices are used to determine what they will pay for medications. That prices is usually production cost +10%.

EU countries also play games with these rules. For instance, if a new drug is found to be extrememly safe and effective, they'll tell the maker that if they don't sell that one at their price, they will limit ALL of the companies products in their country.

While it sounds great for consumers to get cheap drugs, the truth is it has cost them, too. The US in 1978 was responsible for less than 40% of new world drug development, today the number is over 75%. France once produced 25% of new drugs and is now down to less than 4%, because the makers can't earn their money back. How many drugs have't been developed because European and Japanese companies have quit trying?

If we implemented an EU type policy what we'd see is the same drop in development of new drugs. When you can't recover the billions in R&D that is used to make the drugs, you quit doing it.

The true solution is to make prescription drug prices part of our trade policy. By forcing other countries to bear part of the burden of the R&D costs it would reduce that burden here. By requiring them to use the US price in their formulas for setting prices would be a good start.

For countries that refuse to use a more realistic formula, I believe a 10% export tax (which I generally despise) on pharmceuticals would be a way to even the field. That money could be used to fund our own Medicare program or other health care projects.

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Blogger Toni said...

I like your suggestion. Explaining the drug dilema is difficult to do. People would just prefer to blame the pharma companies. The only thing I blame the pharma companies for is that they do cave in to socialist pricing controls. I think the pharma's should refuse to bow to their price fixing:so you don't wanna pay, then we don't play. That's why I get tired of making up the cost here in the US for price fixing countries. Pharma's are asking for price controls in this country which I think would not be good. Almost seems inevitable though.

8:55 AM  
Blogger Lone Pony said...

heh...Bob for president!

10:50 AM  
Blogger Crazy Politico said...

Toni, pharma's do bear some responsibility, but not nearly as much as narrow interest groups want us to believe.

For instance, one group says just be eliminating advertising on drugs we'd reduce prices. But the total adverising cost on Lipitor is somewhere aroud 2% of the development cost, that isn't a huge reduction.

LP- Thanks, but I have a few too many skeltons rattling around in various closets.

7:41 AM  

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