Ealier this year, the city council of our nation's capital, imposed price caps on pharmaceuticals sold in the District of Columbia. Drug companies were not allowed to sell their pills and injections at prices more than 30 percent higher than they sell them wholesale in Germany, Britain, Canada, and Australia. If the companies charged more, they would be subject to civil fines.
U.S. District Court Judge Judge Richard J. Leon ruled yesterday that the price caps violate constitutional protections of interstate commerce and goes against the will of Congress. Judge Leon wrote:
"Punishing the holders of pharmaceutical patents in this manner flies directly in the face of a system of rewards calculated by Congress to insure the continued strength of an industry vital to our national interests."
The Washington Post article cites pharmaceutical industry representatives who argued that "European drug prices are set artificially low and that the District's law would reduce revenue and profits needed to develop drugs.The effects of drug price controls would be harmful to patients." Of course, that's a self-serving statement, but they also happen to be right.
For example, according to a study by the U.S. Department of Commerce, European price controls are already reducing global R&D for new drugs by as much as 16% below what it would otherwise be if market conditions similar to those in the United States prevailed worldwide. The study estimates that imposing these price controls means that three to four fewer new drugs are developed annually.
A National Bureau of Economic Research study estimates that "cutting prices by 40 to 50 percent in the United States will lead to between 30 and 60 percent fewer R and D projects being undertaken in the early stage of developing a new drug."
No one likes paying high prices for vital medicines, but if we don't, the medicines that we'll one day need may not be there.