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Jason Shafrin at Healthcare Economist links to a study that attempts to quantify the relationship between drug importation and pharmaceutical innovation. The study’s author, Frank R. Lichtenberg, concludes that importation would bring about short term price reductions but that innovation would suffer:
In the long run, a 10% decline in drug prices would … be likely to cause at least a 5-6% decline in pharmaceutical innovation.
Shafrin is dubious about the use of market size as a proxy “for what will happen if pharmaceutical trade barriers are destroyed,” but Lichtenberg’s conclusions are consistent with those of other analysts and common sense. If the potential ROI associated with new drugs declines, there will obviously be less incentive for “Big Pharma” to invest in R&D.
Ironically, Shafrin seems perfectly comfortable with Lichenberg’s least defensible claim-that drug importation will reduce domestic pharamceutical prices. This conflicts with the assessment of the CBO, which offers the following on the subject:
On the basis of its evaluation of recent proposals, the Congressional Budget Office (CBO) has concluded that the reduction in drug spending from importation would be small.
So, Lichtenberg and common sense suggest that drug importation would stifle innovation, while the CBO tells us that it wouldn’t save us much money. I wish someone would point this out to John McCain, Ron Paul, and the other politicians who promote this bad idea.
+ May 2007
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