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Why Single Payer Healthcare Works 2

National healthcare saves big on drugs - but at what cost?

By Petrarch  |  September 16, 2018

The Left's decades-long effort to introduce a taxpayer-funded single-payer universal national healthcare system has progressed in fits and starts, but ever growing closer to that fateful day when government controls all our health and lives.  One of their more brilliant strategies has been to create, through regulation and litigation, a system that is so absurdly over-expensive that many people wish government would just take over the whole thing to make the bills go away.  After all, other countries have single-payer healthcare systems that cost much less than medical care does in the United States.

In the first article in this series, we examined how one expected cost-saving measure - that on "excessive" doctor and nurse salaries - wouldn't likely happen in an American national healthcare system.  But not all such proposed savings are so ephemeral.  Let's look at one that would be very real.

The Drugs Not Taken

Perhaps the most famous explanation for single-payer savings is that, when an entire nation negotiates with drug companies for all citizens' consumption all at once, they can get a better price.  Just as Wal-Mart pays its suppliers less than does a mom-and-pop store, and as you pay less for a giant bag of flour at Costco than for the equivalent amount in smaller bags from the corner store, buying in bulk would seem to make sense in healthcare.

And indeed it does: it's well known that Canada and the UK pay less for the same drugs than Americans do.  Indeed, many years ago, your humble correspondent purchased drugs in Canada because they were cheaper there; the price difference has only grown over time.

Why can't America do the same - or, at least, save tax dollars by having Medicare and Medicaid negotiate drug purchases?  The short answer: it's illegal for them to.

But is there a meaningful reason why Americans overpay for drugs, that doesn't depend on misgovernance and bureaucratic fecklessness?  There is, but it's not a pleasant one.

Whenever you see comparisons of drug prices between various countries, you are seeing hard numbers reflecting actual drug sales - that is, drugs which were manufactured, sold, and presumably consumed by patients.  Thus, in order to show up in the statistics, the drugs must first exist.

Why does this matter?  Because when people consider drug prices, they nearly always evaluate them in comparison to their manufacturing cost.  Obviously no company is going to sell a drug for less than it costs to manufacture, and it's only fair for there to be a reasonable profit.  It's the insane 1000% price hikes that make people mad.

And if the drugs we currently take today are all the drugs that ever could exist, that would be fine.  A moment's thought reveals that we want something quite different: we want new and improved drugs to come out all the time, curing previously-incurable diseases or curing them faster than old drugs.  Indeed, sometimes we have to replace old drugs because they stop working, the bacteria having become immune.

So, for the good of society, we need a massive amount of drug research to be going on all the time.

Like any other modern scientific research, drug research is both insanely expensive and totally uncertain as to results.  To discover and develop an entirely new drug from scratch all the way through approval for the market can take $2.5 billion - and nine out of ten new drugs fail to be approved for sale.  Once the drug can legally be sold to patients, there's no guarantee anyone will actually buy it, particularly if insurance companies don't want to cover it.

With such astronomical costs and outlandishly high risk of total failure for each experimental new medicine, what sort of capitalist investors would ever pour money into drug research?  Only one sort: the sort which is expecting an equally astronomically high return in the event of success.

Thus, when we consider the cost of drugs, we can't calculate the profit margin individually because that can't account for the cost of developing new ones which we won't see for another decade or two.  We have to look at the industry overall.  And indeed, we see that while giant pharmaceutical companies do make giant numerical profits, their return on investment is pretty much average.

What's the true cause of high American drug prices?  In effect, Americans are paying the cost of developing new medicines for the entire world.  People in other countries are only paying the cost of manufacturing the drugs they consume, with little or no financial contribution to tomorrow's new pill.

Being the generous people that we are, Americans kindly allow other countries to take advantage of the drugs that we paid to develop.  If we stop paying to develop them, there simply won't be any more new treatments, not for them, and not for us.

But human beings have a hard time calculating "what-ifs".  So if America enacts a single-payer health care system and negotiates huge cuts in drug prices, the Democrats will crow all the way to the polls, as will happy voters no longer paying astronomical drug prices.

It won't be for twenty years that we'll notice, gee, it's been an awfully long time since there we heard of a new cure for anything, hasn't it?  By then we'll be used to paying for healthcare through taxes and not at the hospital, and it will be too late to change back as Canada and England have discovered.  Alas, no politician will ever pay a price at the polls.

There's one more way a national healthcare system can create solid savings, and we'll look at it in the last article in this series.