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\u201cGermany has the fiscal and economic capacity to contribute far more to the cost of innovation,\u201d says health expert Sally Pipes. \u201cInstead, it is choosing to contribute less\u2014and sticking Americans with the bill.\u201d<\/p>\n
AFP via Getty Images<\/p>\n
What does a new healthcare reform effort in Germany<\/a> have to do with American patients? Quite a lot, actually.<\/p>\n The German government is looking to cut healthcare spending by tens of billions of euros. To that end, it is pushing pharmaceutical companies to accept significantly lower prices for new medicines.<\/p>\n That may help Germany balance its books. But it comes at a cost to American patients and pharmaceutical innovation. It\u2019s also fundamentally unfair to the United States.<\/p>\n Germany\u2019s approach to drug pricing is a textbook example of how developed nations shift the cost of medical progress onto American patients.<\/p>\n At the heart of the problem is a basic economic reality. Drug development is extraordinarily expensive. It takes roughly $2.7 billion<\/a>, on average, to successfully bring a drug to market. It\u2019s also risky, as roughly 90%<\/a> of drugs that enter clinical trials never make it to patients.<\/p>\n This system only works when drug companies are free to sell the few drugs that successfully make it at prices that reflect this enormous risk and upfront cost.<\/p>\n Foreign price controls make that impossible.<\/p>\n When wealthy countries like Germany impose strict price controls on medicines developed in the United States, they still gain access to cutting-edge treatments\u2014but at a steep, unearned discount.<\/p>\n Drug companies still need to recoup their investments in research and development and earn a return on the capital they\u2019ve deployed. They can\u2019t get it in Germany. So they look for it in America.<\/p>\n That\u2019s why U.S. prices for brand-name drugs are more than three times higher<\/a> than those paid in other advanced economies, according to an analysis by the RAND Corporation.<\/p>\n That price gap is often treated as a flaw in American health policy\u2014a giveaway to industry. But it\u2019s actually the result of other countries\u2019 price controls.<\/p>\n For years, Germany has relied on a complex system of policies<\/a> to keep a lid on drug prices. After a short period on the market, the government steps in and tells drug companies what it will pay\u2014often by comparing the latest medicines to older or cheaper options. Drugmakers are also required to give steep, mandatory rebates to German payers.<\/p>\n