A reader writes:
Although I agree with the sections of the post explaining why competitive bidding may not work to reduce health care costs, I think you overstepped a bit when discussing the relative efficiencies of health care systems. The study you cite uses a model that does not control for pharmaceutical expenditure per capita. The reason this is important is because the US largely foots the bill for the rest of the world's pharmaceutical R&D costs (authors even refer to another study that does).
Basically, the US healthcare system pays pharmaceutical companies a premium so they can innovate and create new treatments, while the cost-controls used by other governments allows them to receive a price that is closer to production cost but does not fuel R&D (Of relevance, the Biopharm industry is largely leaving Europe). The former is sometimes referred to as more "dynamically efficient" while the latter is more "statically efficient". Although the authors use an approach that is not "wrong", it's a little limited in that it ignores the dynamic effeciency piece. Simply, part of the reason our expenditures are relatively high is that other countries are not at the cutting edge of new medical technology (i.e. Iraq).
Full disclosure: I'm a public policy associate at a large pharma company.
That sounds right to me and I'm glad of the clarification. The basic point remains. Update from a reader:
Pharma is not leaving Europe. At least not officially. And at least not from European tax havens. Many pharma patents are "owned" by Swiss, etc subsidiaries who charge incredibly high license fees to the American manufacturing branch of multinational drug companies. This shifts profits to tax havens where they can accrue without facing US taxation. Drug companies then advocate for holidays from US corporate income tax such as that that took place in 2004/5, during which they repatriate billions in profits and simultaneously avoid US income tax and build up a ridiculous foreign-income-tax credit that can be used to reduce tax liabilities for years to come.
Go look up annual reports from Pfizer from, say, 2006, when they brought billions of profits to the US and distributed it mostly as dividends to stock holders… this generated a huge foreign-tax credit that's still being carried forward. Not a tax professional at all, but I suspect that Mitt Romney's foreign tax credits that spiked in 2005 and have continued to this day probably stem from the tax holiday. This is pretty important in this election, as Romney is proposing a similar holiday right now.
The Dish 