Foreign governments are taking advantage of the U.S.' intellectual property for new drug research and are artificially suppressing drug prices, a study released by the White House Feb. 13 argued.
In other countries with advanced economies, the government acts as the sole purchaser of drugs, so they have the ability to pay below the competitive market price since drug sellers can't sell to anyone else, according to The Wall Street Journal.
The result of foreign underpricing is a slower overall pace of innovation, less competition and higher prices for patented drugs in the U.S. that don't have any competition, according to the study.
"Stringent government underpricing in foreign countries has substantially increased foreign free-riding on the United States," the report from the White House Council of Economic Advisers said.
The study compared the prices of 200 best-selling brand-name drugs in the U.S. and in 15 other developed countries.
It found that European prices are only about 32 percent of the U.S. price, and the gap is widening. In 2003, European countries paid 51 percent of the U.S. price.
The U.S. funds about half of all global medical research, invests 75 percent of global medical venture capital and accounts for 70 percent of patented pharmaceutical profits, so it is disproportionately affected by underpricing in other countries, the Journal reported.
The report also argues that the whole world suffers from a lack of innovation, since drugs are sold globally.
However, smaller countries aren't motivated to pay more for drugs to fund innovation of drugs they may someday need because they don't believe their investment would have much effect on worldwide revenue.
Patricia Danzon, a professor of healthcare management at University of Pennsylvania, argued to the Journal that the reason prices are so much higher in the U.S. isn't because of underpricing in other countries, but because drugmakers in the U.S. are allowed to raise prices whenever they choose, and since insurers or taxpayers cover most of the cost of a drug, consumer demand is price-insensitive.
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