U.S. Senate Testimony on the Dept. Of Commerce OECD Drug Pricing Report

Abstract

The US government has embarked on a trade strategy to address alleged free riding by raising patented prescription drug prices abroad. This strategy is unwise and dangerous.

It is likely to 'succeed' in low and middle income countries, desperate to sign a bilateral trade agreement with the US. Increasing drug prices in these countries will greatly damage health, given relatively high demand elasticities for pharmaceuticals in these populations; modest cash resources for health care; and grave health needs. In short, the strategy will kill people in poorer countries.

Most drug sales and profits are in the rich OECD countries, but the US trade strategy will be ineffective in these countries. The EU and Canada will likely resist any US attempt to interfere with a core domestic policy such as drug reimbursement. The recent experience in the US-Australia Free Trade Agreement bodes ill for the US strategy.

Keywords: OECD, drug, pharmaceutical, pricing, reimbursement, free riding, differential pricing

JEL Classification: H41, H51, I18, K11, K19, K32, K33