Sunday, September 27, 2009

One Reason European Health Care Works: America

A 2006 article by Henry G. Grabowski and Y. Richard Wang in the peer-reviewed journal Health Affairs makes plain, the lion’s share of new chemical entities (NCEs)—that is, genuinely new drugs—are invented in the United States. Between 1993 and 2003, the authors found, 437 NCEs were introduced around the world. America was responsible for 152 of them—far more than any other country—with Japan coming in second with 88 and Germany a distant third with 42 (see chart above).

Why is this important? One reason for America’s drug dominance (though far from the only one) is America’s unsocialized medicine. Here, with the exception of a few programs like Medicaid and the VA system, the government doesn’t regulate the price of drugs, so when a company invents something big—the latest miracle cancer drug, say—it strikes it rich, making its executives hunger for more. Take away the profit motive, as government-run medicine often does by forcing drug companies to sell at discounted prices, and innovation will dry up.

So socialist Europe, by using American drugs is profiting from good old-fashioned American free enterprise. the lesson is to be skeptical of reports speaking glowingly of socialized health-care systems [MP:
Example here of a report cited earlier in this article], because those systems wouldn’t work nearly as well as they do without unsocialized American medicine.

~From "
The Pharmaceutical Umbrella," by Benjamin A. Plotinsky in City Journal

HT: Art Little


At 9/27/2009 9:38 PM, Blogger said...

consider Europe..not just would make a fairer comparison...Japan is 1/3 of the USA...Germany is 1/4 of the USA ...

At 9/27/2009 10:14 PM, Anonymous Nicolas said...

This actually shows that the non-U.S. countries compare favorably relative to their populations. The FDA is central to the harmful effects governments already exert on U.S. healthcare. It does an exemplary job of retarding the introduction of new drugs.

At 9/27/2009 10:44 PM, Anonymous Anonymous said...

The monopsonistic nature of socialized health care systems undermines risk taking and investment. As a result, European and Japanese drug makers rely on the U.S. market in order to make a profit. Should the U.S. health care system become a monopsony it will undermine not just our pharmaceutical industry but the others as well.

The article points out that it's not just the number of NCE's but the importance, "In 1999 more than 80 percent of the total sales of the world top 15 drugs was originated by US companies". The U.S. is producing the drugs that people need and want.

At 9/27/2009 10:44 PM, Blogger juandos said...

"The FDA is central to the harmful effects governments already exert on U.S. healthcare. It does an exemplary job of retarding the introduction of new drugs"...

Outstanding and on target observation IMHO...

At 9/27/2009 10:45 PM, Anonymous Anonymous said...

Recall the reason the FDA is conservative the thalidomide tragedy where a drug was approved in Europe and produced birth defects, but 1 FDA doctor stopped it in the US. As with a number of areas the FDA is in a damned if you do damned if you don't crossfire.
Given that one can't really be an informed consumer in this area due to the depth of information involved.
Recall the grilling the FDA got over E-Coli in lettuce and spinach in the last couple of years and you see the bind the FDA is in, or the issue with lead paint in toys in the last couple of years (not the FDA but similar).
People talk about FDA holdups but the first time a major issue with a drug arises the FDA will be before congress. The natural human reaction is to go with the safe approach, particularly because that is the kind of personality that tends to be attracted to government work.

At 9/27/2009 11:22 PM, Blogger juandos said...

"Recall the reason the FDA is conservative the thalidomide tragedy where a drug was approved in Europe and produced birth defects, but 1 FDA doctor stopped it in the US"...

Hmmm, interesting point and one I remember but its still the basic problem of bureaucrats with the final say so on which drug advances and which ones don't...

High corruption potential in a Constitutionally dubious bureaucracy...

At 9/27/2009 11:38 PM, Blogger bobble said...

"So socialist Europe, by using American drugs is profiting from good old-fashioned American free enterprise"

the question is, why the #*&$@ are we the only country paying the high prices needed for development of new drugs?

those foreign governments should be required to pay the U.S. price. if they then want to socialize the price, that's fine, do it with their own tax dollars.

perhaps an export tax on US drugs?

i think the free ride should end.

At 9/28/2009 2:45 AM, Anonymous richard said...


I think the US and the rest of the world is free-riding on Switzerland.


After all, there are only 8m swiss, but they still listed about a fourth of the new chemicals as the US did.

Correlation is not causation.

At 9/28/2009 2:52 AM, Anonymous richard said...

The simplest way to make sure everybody pays his own fair share is to allow medical drugs to be imported and exported without tax etc.

That way, the price of medical drugs in the us will lower and abroad will raise.

Today it is not allowed to import cheap drugs from Canada. US companies are subsidizing Canadians with cheap drugs and the US government prohibits Americans to take advantage of that.

It seems to me nobody should feel sorry for US drugs companies, but instead insist on that their government allow them to take advantage of is.

At 9/28/2009 3:35 AM, Anonymous Anonymous said...

The FDA didn't have the authority at the time to stop thalidomide. I find government overreach of its powers far more disturbing.

Don't forget Bastiat: "...what is unseen". What is unseen is how many people die or suffer needlessly because the FDA won't approve or delays approving new drugs and medical devices.

Personally, if I had one of any number of diseases, and there were a drug out there that would cure them or at least stop the disease from getting worse, at the cost of significant risk of death, I'd take that chance. The FDA, in it's offensively paternal wisdom, won't let me make that choice.

At 9/28/2009 10:08 AM, Anonymous gettingrational said...

It is interesting that China's health care may work because of America also. In an article entilted China's Bad Medicine Roger Bate, a fellow at the American Enterprise Institute, states counterfeited name brand and generic pharmaceuticals are a $75 billion dollar business. In fact, if you buy "re-imported" drugs on the internet there is a one in six chance that you will use fake drugs!

This is a situation that hurts the reputation of the drugmakers severely. Intellectual Property exports now account for over 50% of U.S. exports (U.S. Chamber of Commerce) so the trade deficit would be considerably less without fake drugs. Mr. Bate says when a fake drug is identified in China the offending firm does its own case work and then presents the findings to authorities! Thus, if a case is prosecuted the fine ranges from $15 to $580 for the offending firm!

At 9/28/2009 10:26 AM, Blogger Mimihapa said...

Herein lies the greatest (and saddest) fallacy, and more importantly, the reason why the USA is ranked 37th out of 191 countries in the world for health care (it's behind even Chile, Morocco and Colombia! );


Keep in mind that the US is ranked 1st in health expenditure per capita.

It just goes to show that if an argument or discussion is started with erroneous logic, we will end up with absolutely the wrong conclusions.

See rankings here: and

At 9/28/2009 11:17 AM, Anonymous SG said...

"socialist Europe" 184
USA 152
Japan 88
others (including BRIC) 14
hmm .. numbers ..
and than again it would be quite interresting a statistic like that but with procentage of "solved" patient cases where by solved we count "once ill now healthy" people and not "once ill now drug-consumer" people.

At 9/28/2009 11:29 AM, Anonymous Nicolas said...

Exclude the development and sales by U.S. companies of drugs for treatment of psychiatric non-diseases and the "medicalization of everyday life," and the picture might look decidedly more favorable for non-U.S. pharma.

The most elementary problem is the prescription drug laws, which are the foundation of totalitarian controls, high prices, crushed competition, and muted innovation.

At 9/28/2009 1:26 PM, Anonymous Dolce said...

The USA has 90 Nobel Prizes in Medicine or Physiology, as many as the next 15 nations combined. These include the populous countries of Russia (1), China (0), and India (0).

Nicolas and Richard, "populations"don't make drugs. Companies and their supporting research institutions do. It's absolutely fallacious to look at NCEs per capita. A larger population is no guarantee of a larger pool of brilliant, well-educated minds.

There are times when absolute measures are more correct than relative measures. This is one of them.

At 9/28/2009 10:48 PM, Anonymous Nicolas said...

I disagree, Dolce. Concentrated populations do tend to to be more economically productive. Wyoming is not the engine that pulls America's innovative train.

By what measure is the United States, smothered as it is by regulation, a greater drug innovator than Germany, France, Japan, Switzerland, or the UK? It innovate roughly in proportion to its greater size and greater number of businesses. As richard noted, Switzerland compares very favorably with the US for new drug development, and what sort of medical system does Switzerland have?

The operative enthymeme, fostered by the host, is that the U.S. has a predominately free market healthcare system. But from drug regulation and occupational licensing, to insurance mandates and who pays the bills, US healthcare is overwhelmingly NOT free market. It's economics may be more fascist than socialist, but it sure ain't capitalist. Government in the US distorts healthcare differently than it does in Europe and Japan, but it distorts it no less. Many free market economists argue that the FDA's boot is more oppressive than that of regulatory agencies in most European countries.

At 9/28/2009 11:44 PM, Anonymous Dolce said...

Gibberish Nicolas.

A large population can expand production possibilities but by no means does it guarantee it. Efficiency in the system and technological advantage is what puts population to its best use. As I said, the highly populated India and China are not marvels of modern medicine. And they had a 2000 year head start on the rest of the world.

Switzerland is relatively successful because of comparative advantage, a concept you apparently don't understand.

The US does well, indeed, with a lot of government involvement. We've got public research institutes and universities, public grants, and patent protection. These are not laissez faire policies but they are consistent with the theories of efficient production in the presence of barriers to entry, natural monopoly, externalities, and public goods.

The US has 12 of the top 20 drug companies. Even foreign companies like Roche and Bayer have production and research facilities in the US. Their researchers are mostly educated in the US. We are the marvel of the drug world.

By the way, Wyoming is the country's largest coal producer and has one of the best local economies in the nation. North and South Dakota are also very strong despite no major industries. Economic health isn't about being the "engine" dragging an economy. It's about doing what you do best- comparative advantage.

California is living proof of your fallacy. It's blessed with high population, natural resources, technology, human capital, and good geography. It's a basket case.

The FDA might stupidly overregulate, but you forget the history of harmful patent medicines and contaminated food before the FDA. Some regulation is prudent. Too much is destructive of innovation. None is assinine and dangerous. We're talking about complex chemistry and human physiology here which affect the human body, not whether a brand of tires will give you improved handling, gas mileage, and less road noise. Consumers do not have the sophistication and education to make wise choices. Even rigorous clinical trials sometimes fail to discover long-term effects and harmful interactions.

At 9/29/2009 9:09 AM, Anonymous Nicolas said...

Dolce, you make a lot of declarations, but offer little support for your beliefs. And you spice your comments with the usual base Internet insults. I hope they make you feel better about yourself.

You say that Switzerland has a comparative advantage. What is it? Why are more pharma companies not based in Switzerland to exploit that advantage?

I just find it weird that you don't think we can use population as a way to compare pharma productivity. As I asked earlier, by what standard do the French, Japanese, Germans, Brits, and Swiss fare badly compared to the US? You want us to measure by the number of drug companies rather than by the number of new drugs? Then why are the Europeans producing as many new drugs with fewer drug companies than are based in the US? (Based, that is, on your arbitrary choice of the 20 biggest companies.)

By your measure California is doing well. It is home to a substantial percentage of corporations. You are proud of your awareness of comparative advantage, but you seem unaware that a denser population is one of the advantages. With higher population density comes cheaper operating costs, more amenities, and access to more qualified employees. How many US-based drug companies have their operations in rural areas?

The greatest comparative advantage is freedom. The US could be a much larger producer of new drugs if the FDA didn't exploit, as randian noted, Bastiat's unseen.

Why pick the top 20 drug companies and declare the US the winner? Why not the top ten, of which 4 are based in the US and 6 in Europe. Why not the top 30, of which 12 are based in the US? Most of the US-based companies in the top 20 are in the bottom half, and so account for much lower sales than the top half. Or maybe in your view sales are not a good measure of pharmaceutical productivity.

All of the US-based pharma companies in the top 10 are in areas with high population densities. They are all in New York, New Jersey, California, and Illinois. Why not Montana, North Dakota, Wyoming, and Idaho?

At 9/29/2009 9:35 AM, Anonymous Nicolas said...

Dolce, you wrote:

"California is living proof of your fallacy. It's blessed with high population, natural resources, technology, human capital, and good geography. It's a basket case."

In 2007 the California "basket case" had the 8th highest median household income in the US., even with an inordinate proportion of low-productivity foreign-born residents.

I'd bet that the basket case state of California is home to a disproportionate number of the winners of the Nobel Prize in Medicine and Physiology who you tossed into the discussion. Apparently you do think that population density is relevant if it consists of Nobel prize winners. What this actually shows is that other things are more important for new drug innovation than a high concentration of Nobel winners, since Europeans have far fewer winners but produce more new drugs. Something is canceling out the US academic and Nobel advantage.

Along with comparative advantages are comparative disadvantages, the most important of which is too much government. California's problems are political, not geographical, and have no relevance to this discussion.

At 9/29/2009 1:50 PM, Blogger juandos said...

"In 2007 the California "basket case" had the 8th highest median household income in the US., even with an inordinate proportion of low-productivity foreign-born residents"...

Hey Nicolas could the reason that California was/is ranked 7th was due work that happened back in the sixties and seventies when California wasn't so liberal?

Just asking...


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