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There’s a good reason why Florida pays more for prescriptions drugs than some countries
A prescription drug pricing bill filled by Florida legislators isn’t the right answer.
 
Americans pay more for some prescription drugs than their counterparts in some other countries.
Americans pay more for some prescription drugs than their counterparts in some other countries. [ ELISE AMENDOLA | AP ]
Published Feb. 1

Two Republicans in the Florida Legislature, perhaps inspired by Gov. Ron DeSantis’ interest in importing drugs from Canada, have introduced HB 1431, a so-called “reference pricing” bill, which would peg the price of drugs in Florida to prices in other countries.

William S. Smith
William S. Smith [ Courtesy of William S. Smith ]

Reps. Randy Fine and Ralph Massullo, M.D., the authors of the bill, themselves are “America First” Republicans, meaning that they are standing up for American consumers against predatory drug companies.

But are they?

Like it or not, research to develop and sell medicines is an American industry. We are, hands down, the worldwide leader in biomedical research. You can throw a rock from my office in Boston and hit a hundred biotech and pharmaceutical companies that are foundational to the region’s economy.

The therapies the country developed here have changed health, with cures once considered unimaginable, and health care in the U.S. by making outpatient care ubiquitous and lessening the centrality of hospitals.

According to the World Health Organization, there were 168,520 registered clinical trials in the U.S. between 1999 and 2022. U.S. research dwarfed China, which came in second at 94,193 trials. European nations were far back with Germany at 52,828 trials and the U.K. at 47,201.

But how is it possible that prescription drugs are cheaper in other nations when we make them here? And what’s “wrong” with states pegging prices to those lower prices?

The answer is that, as is the case with defense spending, foreign nations freeload off American investments in biomedical research and pay less than market prices.

There is nothing drug companies can do, outside of refusing to sell the drug in underpriced markets. That’s an untenable position for American drug companies to be in.

The business of discovering cures and developing medicines comes with high R&D costs and often low manufacturing costs. Drug companies are, you could say, the opposite of car companies, which spend less on R&D and more on manufacturing the vehicle.

This distinction matters. If you are the CEO of Ford and France requires that you sell F-150 pickups at a 50% discount over U.S. prices, you will say, “Forget it, we would lose money on every truck since 75% of the cost of each F-150 is in the manufacturing.” That’s why foreign nations don’t freeload off companies with high manufacturing costs.

You’ll get a different answer from a drug company CEO. If France required a 50% discount, the CEO would have a difficult decision to make. The drug company may have already sunk $1 billion into developing the pill — that money is spent — and it only costs one-tenth of a cent to manufacture it. Do you walk away from millions in French revenue because the French are not paying a fair market price?

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Importantly, from a moral perspective, can you deny medicines to the people of France because their government is freeloading? As a CEO, you have an obligation to the company, shareholders and patients. There is no way you can walk away from that French revenue, even if the prices are mandated to be low.

Many nations engage in this freeloading because they know drug companies will not forgo the revenue or face the PR spectacle of denying patients breakthrough medicines.

The real answer here is for Republicans to make freeloading on American innovation a major trade issue for the White House. In trade talks with other nations, we should ensure that they are not engaging in unfair trade tactics and taking advantage of American consumers who pay for the lion’s share of biopharmaceutical R&D.

This would spread the cost of drugs and lower prices for American consumers.

One thing these “America First” Republicans should not be doing is introducing bills to copy the freeloaders. That will harm American industry, slow American medical discoveries and innovation, and allow China to achieve supremacy in the industry. That is an “America Last” approach, not “America First.”

William S. Smith, Ph.D., is a senior fellow and director of the Life Sciences Initiative at Pioneer Institute in Boston.