Many Americans are understandably concerned by how expensive prescription drugs can be. In an effort to bring down these out-of-pocket costs, some contend that the U.S. should follow the example of foreign countries that have set strict limits on how much can be charged for pharmaceuticals. Specifically, some U.S. policymakers are pushing for the federal government to use foreign reference pricing when setting drug prices which would force U.S. pharmaceutical companies to simply lower their prices to match foreign prices. 

Everyone loves the party game/icebreaker “two truths and a lie.”

Can you identify which of the following is NOT true about pharmaceutical price controls?

A. The cost of developing a new drug from start to finish is about $2.6 billion dollars.
B. Americans pay more for prescription drugs than their European counterparts. 
C. Price controls have little to no impact on innovation while improving access to care for those who need it most.

Let’s take these statements one at a time:

A. TRUE! A survey by the Tufts Center for the Study of Drug Development found the cost of developing a new drug from start to finish is, on average, $2.6 billion dollars. The survey also found that drug companies also receive a reliable return on their investment. This suggests that pharmaceutical drugs are priced based on the cost of the research and development put in.

B. TRUE! In the United States, the market still determines the price of a prescription drug. But in many other major countries, price controls prevent companies from charging what the drug is worth which forces producers to underprice drugs sold abroad. Unfortunately, this means that producers then over-price the same drugs when sold to Americans in order to offset these losses. 

C. FALSE! The U.S. has long been the global leader in medical innovation but price controls, including a system based on international reference pricing, would likely suppress innovation. Pharmaceutical price controls can also impede access to medical care. IWF Policy Director Hadley Heath Manning explains why in an IWF policy focus examining why pharmaceutical drugs are so expensive:

“If foreign price controls lowered prices within the United States, the same problem would result here as is the case overseas: Drug makers would see a diminished return, decreasing their incentive to produce drugs in high demand, resulting ultimately in shortages and the end of continued research and innovation.”

Pharmaceutical research and development costs are necessary for the creation of life-saving drugs and other treatments. While it’s unfair that Americans are disproportionately the ones financing these costs, this is not something that can be solved with price controls. 

Instead, to combat expensive pharmaceutical drug prices while still continuing to foster innovation, the U.S. should negotiate for a more equitable distribution of research and development costs so that this responsibility is shared among the nations. A free, competitive market can also bring down costs and make prescription drugs more affordable.