Thomas Sowell

Reader responses to the discussion of government-controlled medical care in this column raised questions that need answering. The most frequently raised question was why American pharmaceutical drugs sell for less in other countries.

Some readers considered this proof that the sellers of these drugs were making excessive profits. They argued that, since the companies were obviously making profits when they sold their drugs in Canada, they must be making super-profits when they sold the same drugs for higher prices in the United States.

Other readers, however, understood that Canadians and Americans were covering different costs. The Canadian government, ordering drugs for a whole medical care system, could make a take-it-or-leave-it offer that would cover the manufacturing costs, while Americans were left paying prices that cover the much higher costs of creating the drug in the first place.

If the drug company turned down the Canadian government's offer, both the company and American consumers would be worse off. Whatever the Canadian price contributed to company earnings, over and above the manufacturing costs, reduced the need to raise American prices still higher to cover the full costs of creating the drug -- which are hundreds of millions of dollars per drug.

Ultimately, both the research costs and the manufacturing costs have to be covered if new drugs are to continue to be developed. But, once a drug is in existence, any government-run medical system can take advantage by offering to cover only the manufacturing costs.

After all, seldom is one drug the only treatment for a given condition. Even if it were, a sovereign nation could simply disregard American patents and authorize its own pharmaceutical companies to copy the formula. With one buyer and many potential sellers, the deck is stacked.

Many readers thought that this unfairness should be stopped. But none had any idea for a viable plan to stop it. Neither do I.

Those who think that the answer to all problems is to pass a law want the American government to control drug prices, in the name of fairness among countries. But none of those who suggested this weighed the costs against the benefits. Turning drug prices into a political football is solving one problem by creating a bigger problem.

Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

Creators Syndicate