Dear Brian,

I thoroughly enjoyed talking with you at your Bridger Canyon fundraiser. I am favorably impressed with your intelligence, knowledge, and personality.

I share your concern about the complex issues surrounding the pharmaceutical industry. Congress recently approved a prescription drug benefit for Medicare costing $40 billion per year and I expect more.

You’ve supported prescription drug re-importation despite the critical problem of quality control. Others howl for price controls and shortening the patent protection time. Ironically, these ideas threaten improvements in our nation’s health care system. When you next advocate reform, please consider these four fundamental points.

First, be alert to dangers of political short-sightedness. Naturally, most politicians promote policies favored by today’s voters. Few ask, “What happens after the election?” Current Medicare liabilities dwarf Social Security’s at $13.3 trillion. Michael Tanner of the Cato Institute calculates they will double as a percentage of GDP by 2040. Current advocates of reform often ignore the high long-term prices of their plans.

Second, incentives matter. Most of Europe and Canada have ignored this when designing prescription drug policies. They use price controls to help their consumers. But lower profits thwart R&D in their pharmaceutical industries. Hence, America has become a sanctuary for innovative companies.

In 1990, European pharmaceutical companies spent nearly twice as much on research as American companies ($7 billion to $4.3 billion). This dramatically shifted by 2000. Europe doubled expenditures to $14.8 billion, while America nearly quintupled to $20.9 billion.

Typically only one in 5000 to 10,000 compounds ends up as a marketable drug. The Tufts Center for the Study of Drug Development estimates the average cost of development at $900 million. Only 30 percent of new drugs make money. So a successful medication must pay for its creation, research on the unsuccessful attempts, overhead, and lawsuits. The high risk justifies the 14-year patents. This gives the makers time to recoup their tremendous development costs.

Timely patents and market pricing encourage research. Price controls and bureaucratic delays undermine this incentive system. Without incentives, American drug companies would face the same choice as their European counterparts: stop innovating or relocate abroad.

Third, every issue involves trade-offs. Consumers care about more than prices. In the drug market especially, ingenious new products provide greater healing properties. The trade-off is high prices versus innovation. We could have a constrained drug market with low prices. Protracted negotiations between companies and the federal government would follow. But most people would prefer an innovative market with many new, and more helpful, drugs.

Consider AIDS. In 1987 activists praised the creation of the first drug, AZT. Now there are 74 anti-AIDS medications available and 100 more in development. Concurrently, research shifted from Europe to America.

Profits on successful drugs prompt intensive research and development efforts to find the next miracle cures and therapies. More than 200 medications are under development for children’s diseases and another 800 for elderly conditions. They seek relief for Alzheimer’s, osteoarthritis, prostate disease, and much more. If we dictate lower prices, then which diseases will we neglect?

Fourth, see how Americans are exploited. Prescription drugs illustrate “exploitation of the great by the small.” Smaller, more socialist countries take advantage of the U.S. consumer. Alan Murray explains this in the Wall Street Journal, “Price controls overseas -- backed by the implicit threat that the countries won’t honor American patents if they don’t get good prices -- force the drug companies to recoup most of their research costs here in the U.S.”

Other nations free ride on research paid for by U.S. consumers. How can this exploitation of Americans by foreign countries be stopped? Suggestions for drug re-importation, price controls, and shortening patents all attempt the impossible -- free riding on ourselves.

Pharmaceutical companies provide an easy target for frustrated consumers and politicians seeking votes. But what other industry does more to improve American lives? They clear up our allergies, help us overcome depression, foster healthier hearts, and so much more. There is no way to have state-of-the-art medical care without someone paying for it.

Well-intended actions often have perverse, unintended consequences. When enacting reform, please ask the critical question, “And then what? What are the logical long-term consequences?” Our health merits an honest answer.