Monday, November 20, 2006
Kevin Drum at the Washington Monthly discusses the future effort of the new Congress to permit the government to negotiate prescription drug prices with the pharmaceutical companies who provides drugs under the new Medicare drug benefit. He cites to a recent Jonathon Cohn article in the New Republic and discusses his belief that such negotiations and resulting lower prices will not doom the industry.
But wait. If the feds negotiate prices, then prices will go down. And if prices go down, pharmaceutical companies might make less money. And if pharmaceutical companies make less money, they'll do less basic research and churn out fewer lifesaving drugs. As Jonathan Cohn says in The New Republic, this is "a potent argument." It's also probably wrong:
The most important basic medical and scientific research that leads to major medical breakthroughs usually takes place under government auspices — typically, through grants from the National Institutes of Health. In other words, taxpayers — not drug companies — are the ones financing the most important drug research today. So, even if the pharmaceutical industry did reduce its research and development investment because of declining revenues, what we'd lose probably wouldn't be the next cure for cancer — it would be the next treatment for seasonal allergies, and likely no better than the ones we have already.