The high cost of R&D makes pharmaceuticals vulnerable to aggressive price regulation. Yet even stringent price regulatory systems have failed to control total drug expenditures. The challenge for public policy, the author states, is securing a balance between controlling health care spending today and preserving incentives for innovative R&D for health and the quality of life tomorrow. The author argues that the growing international regulation of drug prices and expenditures already affects the efficiency of drug R&D and of health care -- and could harm patient care now and the quality of life in the future. She examines the effect of existing foreign regulation -- price controls, rate-of-return regulations, and industrial policies -- on U.S. firms, the major producers of innovative drugs. She explores the indirect spillovers from the regulatory use of international price comparisons and the increasing threat from parallel trade, particularly as countries with cheaper labor and...
