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Foreign Free Riders and the High Price of US Medicines

Companies recover all costs at European & Canadian prices. US prices are much higher because Congress allowed companies to charge more and then raise prices.

Donald W. Light, Joel Lexchin BMJ vol 331: 958-60

We can find no evidence to support the widely believed claims from industry that lower prices in other industrialised countries do not allow companies to recover their R&D costs; so they have to charge Americans more to make up the difference and pay for these "foreign free riders." We also explain why the claims themselves contradict the economic nature of the pharmaceutical industry.

The latest report from the UK Pharmaceutical Price Regulation Scheme shows that drug companies in the United Kingdom invest more of their revenues from domestic sales in research and development than do companies in the US. Prices in the UK are much lower than those in the US yet profits remain robust.

Companies in other countries also manage to recover their research and development costs, maintain high profits, and sell drugs at substantially lower prices than in the US. For example, in Canada the 35 companies that are members of the brand name industry association report that income from domestic sales is, on average, about 10 times greater than research and development costs. They have profits higher than makers of computer equipment and telecommunications carriers despite prices being about 40% lower than in the US.