State Run Medicine: Bureaucrat Salaries Trump Patients
Italian Daniele Capezzone writes in the WSJ($):
This situation is especially dire in Italy. The government has capped spending on pharmaceuticals at 13% of total health-care expenditures while letting expenses for infrastructure and staff skyrocket. From 2001 to 2005, general health expenses in Italy grew by 31% while expenditure on medicines increased a mere 1.7%. Italian patients might well have been better off if the reverse was the case, but the state bureaucrats who make these decisions refuse to acknowledge the benefits of advanced drugs....
Part of the problem is that regional authorities manage most of Italy's health-care spending. A strike by health-care personnel has an immediate impact on the region, but the consequences of cutting the budget for medicines are only felt in the long term and distributed across the nation. Hence, local authorities continue to focus on personnel and infrastructure in an age when medical research has become the most efficient way to improve public health.
Gee, government officials more concerned about raising government salaries than performance? Couldn't possibly happen in the US, could it? This is classic government management -- freeze or reduce expenses that actually provide customer service, and raise administrative costs and salaries many times faster than inflation. This is exactly what has happened in public schools, as infrastructure and teaching aid investments have been deferred in favor of raising salaries and adding untold number of vice-principals and administrators to every school.
But the government is focused on the long-term while greedy old for-profits are short-term focused. Right?
Unfortunately, most of today's cutting-edge research is conducted outside Europe, which was once a pioneer in this field. About 78% of global biotechnology research funds are spent in the U.S., compared to just 16% in Europe. Americans therefore have better access to modern drugs. One result is that in the U.S., the annual death rate from cancer is 196 per 100,000 people, compared to 235 in Britain, 244 in France, 270 in Italy and 273 in Germany.
Update: Ronald Bailey points out that drug re importation is just a way to impose drug price controls in the US, effectively applying the most aggressive price-control regime for each drug worldwide to US prices. Right now, drug companies tolerate price controls set as much as 2/3 under US prices or more because they can still make money at the margin, because the marginal cost of drug production is so much lower than the total cost with R&D, etc. included. However, they cannot survive at these prices applied to US demand. Remember, drug companies have profits margins averaging in the 18-20% range. Perhaps you might argue they should only be making 10%, but that only gives you room for an imposed 10% price cut, not the huge cuts politicians would like. And you would get that only at tremendous costs in terms of lost freedoms and demolished incentives for new drug development.
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