The US is key. When it works, our patent system produces more innovations than any other nation BECAUSE of the profit motive.

There are several important reasons why health care is so expensive in the United States, and Grossman points out perhaps the most important: the United States effectively subsidizes research and development of drugs and medical devices for the rest of the world. As Grossman notes, other advanced nations “clamp down” on the profit motive in various ways, meaning that people who would normally make more money in a free market through developing new medical devices, medications, or procedures to produce better health care outcomes and perhaps drive down prices through competition have less incentive to do so in these more government-controlled health care systems. That is, despite the many regulations and laws aimed at consumer protection and safety that do exist in the United States, our health care market is relatively freer and more dynamic than those of other developed countries. This leads to a high rate of medical and pharmaceutical innovation that ends up benefiting the rest of the world, particularly other rich countries, in a similar way that NATO nations, for example, benefit from close military alliance with the United States. In short and somewhat reductive terms: we spend more money so everyone else can be healthier. But this doesn’t make total sense at first. If the United States is developing more innovative medicines, devices, and procedures than every other advanced economy, why aren’t we making money by selling these medical innovations to others for a hefty profit? Why aren’t there many more billions of dollars of revenue coming into the United States Treasury because of our status as a medical innovator? The answer is complicated, but here are some facts you need to know: First, pharmaceutical companies which innovate in the United States charge their domestic customers much more than they do their customers abroad. This is because, if countries don’t like the prices charged by a given pharmaceutical company for a certain drug, they will simply ignore the patent that company holds for their drug in the United States or elsewhere. Novartis spent nearly 15 years seeking a patent in India for Glivec, a medicine for chronic myeloid leukemia. That quest reached its dead end, at last. India’s Supreme Court rejected the Swiss drugmaker’s patent application. Glivec (marketed in America as “Gleevec”) is a blockbuster, earning the Swiss drugmaker $4.7 billion last year. Its prospects in India are now zilch. Although in this example Novartis happens to be a Swiss drug company, the ruling sends the same clear message to drug makers in the United States: Give us your drugs for next to nothing or you’ll get exactly nothing. Second, and relatedly, notice that there seems to be a correlation between how much a country spends on prescription drugs and the percentage of NMEs (New Molecular Entities) produced by that country. If you combine points 1 and 2, you start to understand that the high spending of health care consumers in the United States is arguably funding not only global pharmaceutical innovation but is also facilitating the availability of new medicines to other countries at much lower prices than domestic consumers pay. There is a third factor that might help explain why health care, especially with regard to pharmaceutical innovation, is so much more expensive in the United States: our massive regulatory agency of all things drugs and food, also known as the FDA, is significantly more burdensome for medical innovation than the analogous agency for all of Europe, the EMA (European Medicines Agency). The EMA doesn’t get the final say on whether a drug gets approved for sale in the EU, and perhaps even more significantly, they don’t breathe down their drug companies’ necks during clinical trials. In the U.S., because of the cumbersome bureaucracy of the FDA and its processes, we decide to tackle more targets in the drug development scene through “Fast Track” and “Breakthrough Therapy” route than through the more traditional and more costly standard drug approval processes. Does this represent an implicit admission that government is inefficient? The breakthrough therapy designation was created by the FDA Safety and Innovation Act, a law that requires the agency to fast-track promising drugs for serious or life-threatening conditions. The FDA aims to do this by meeting early and often with developers, as well as working with them to design clinical trials that deliver the needed data quickly and efficiently. It’s understandable that, given limited resources, the regulatory process can’t be automatic, or even fast-tracked, for all applicants. But if the FDA can put a medication on a path where an evaluation can be made “quickly and efficiently,” does that mean the normal course of action is to proceed slowly and inefficiently? If so, this could represent a needless driver of health care costs. We need to be able to ask this question: Is there something going wrong with the drug development process to have the costs so high and climbing higher every year? Looking at a cost breakdown of Big Pharma companies from 2014, a big chunk of their costs, almost equal to the sum of the entire first and second phase of their clinical trials, come from the 4th phase of clinical trials, which is often referred to as “post-marketing surveillance.” This is the phase of a drug’s life that takes place after its approval for sale on the U.S. market, in which the FDA requires continued and ongoing studies to validate the drug’s safety and efficacy using data generated from every phase of clinical trials leading up to its approval in the first place. It’s in this phase of a drug’s life where, after spending large amounts of money to get the drug approved, companies can still watch as the FDA rescinds a drug’s approval status, which leads to the drug getting withdrawn from the market, in many cases never to be seen again. In fact, as of 2015, 462 medicinal products were withdrawn from the market between 1953 and 2013, and the supporting evidence in 72 % of cases consisted of anecdotal reports. Only 43 (9.34 %) drugs were withdrawn worldwide and 179 (39 %) were withdrawn in one country only. Withdrawal was significantly less likely in Africa than in other continents (Europe, the Americas, Asia, and Australasia and Oceania). So, not only is almost a fourth of a drug’s average R & D cost attributable to legislative constraints the government imposes on pharmaceutical companies to police their own products even after they’ve been approved based on incredibly high standards of safety and testing, but also, compared to less developed countries, we’re more likely to pull drugs off the market and revoke their status as a result of anecdotal case reports of adverse effects that generally go unverified. We consistently decide to err on the side of safety, even if it means pulling the plug on a 10–15-year-long investment (the average length of development for a drug), which helps clarify how aspiring for safer and more effective drugs begins to preclude cheaper drugs. So the United States produces the most novel and cutting edge therapeutic compounds despite the most expensive and stringent approval process and sells them to other countries at much lower prices than we do at home. In doing this, we are indeed subsidizing research and development of drugs and medical devices for the rest of the world. This subsidized medical innovation is a major contributing factor to the out-of-control health care costs in the United States, and losing this innovation will be one of the sacrifices we make if we move toward a more cost-controlled or government-run health care system over the next several years.