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The Case for German Leadership on Health Care

Could the Germans actually be more “capitalist” than the Americans? Let’s consider drug prices.

March 30, 2012

Could the Germans actually be more "capitalist" than the Americans? Let's consider drug prices.

It is often argued that the United States is the country that is bottom-line oriented and thoroughly capitalist in nature. To judge whether or not this is true obviously depends on one’s definition of what capitalism really means.

If it stands for the maximum opportunity for companies to rake in profits, then the United States, based on the evidence of the costs of its healthcare system, is very “capitalist” indeed.

If, however, capitalism suggests a mix of maximum economic efficiency and a fair reward for the assumption of entrepreneurial risk, then the Germans might actually be more “capitalist” than the Americans.

This is no abstract debate. As cost pressures on households all over the Western world become ever harder to deal with in light of stagnating incomes, one of the key functions of capitalism is to give people more “bang” for their buck.

In the consumer electronics market, from computers to televisions, that rule has pretty much applied for the last two decades. Prices have either come down significantly, or products have become much more sophisticated and powerful at the previous price point (or a combination of both).

One big exception, though, has been the world of health care — and, in particular, drug prices. The latter are a key factor in keeping healthcare costs unaffordably high.

To contend with these run-away costs, the German government last year enacted a new law that has pharmaceutical companies the world over shaking in their boots. Before agreeing to pay more for new (read: more costly) medicines, the Germans actually want to see proof that the new medicines actually offer a real benefit over what’s already available in the marketplace.

That is the concept of “evidence-based medicine,” which the Obama Administration was keen on making a core part of its healthcare overhaul. Mr. Obama proposed the creation of an independent research institute to make recommendations for or against specific treatments (including drugs) based, in part, on their cost-effectiveness. The institute was labeled “death panels” by conservative opponents of the legislation.

While the provision remained in the final version of the Affordable Care Act that passed Congress, and was signed into law by Mr. Obama, in 2010, the law pointedly prevents the panel’s findings from being “construed as mandates, guidelines, or recommendations for payment, coverage, or treatment; or used to deny coverage.”

How did it work out this way? The reason is that, in a well-honed Washington practice, drug companies managed to lobby it away. It is as if they are saying: “Trust our advertising, just don’t measure us by our performance.”

Doing the people’s business?

This is a serious matter, not just because a lot of drugs are coming off patent, and ever more generics offer a lower cost path for insurers and patients alike. To fend off the real impact of a shift to generic drugs, pharmaceutical companies are busy reinventing their existing medicines in one way or another to keep them “on patent.”

Their effort is completely understandable. What company wouldn’t want to pull off such a charade? Where the U.S. model falls short is in the insufficient role exercised by the Congress. With members’ reelection campaigns handsomely financed by these companies (and contributions from plenty of other industries), U.S. politicians end up acting in the interest of the companies instead of the people they purport to represent.

This sad state of affairs also shows why so many U.S. opinion leaders are adamant about complaining about European-style parliamentary democracy. They claim that, in Europe, “the government” is just too powerful and can throw its weight around to get its way.

In reality, it’s the other way around. In Europe, parliaments actually are the representatives of their people and focus on getting the people’s business done. The contrast to the United States could not be greater. There, Congress is the branch that often stops the people’s business from being taken care of in a positive, results-oriented manner.

But why, you might wonder, are even mighty U.S. drug companies so concerned about Germany’s new, tougher, people- and democracy-oriented evidence-based system? First, because Germany is Europe’s largest economy and, second, because whatever the large pharmaceutical groups end up accepting there might soon become the standard throughout the rest of Europe.

So there you have it: Before ordinary Americans will be able to benefit from the efficiency and effectiveness that is supposedly part and parcel of the capitalist model, they will have to wait for Europe to push back hard on drug companies — via evidence-based medicine.

And make no mistake, the Republican presidential contenders in the United States will claim this as further evidence of European “socialism,” and they will warn their fellow Americans not to follow Europe’s dangerous example.

When you hear this, you might want to apply this rhetorical rule-of-thumb: Anytime Republicans claim that “the government” is too powerful, what they are really saying is this: “Let’s ensure that the people don’t become too powerful.”

But that’s not socialism, that’s actually democracy.


U.S. politicians end up acting in the interest of the companies that finance them, not the people they purport to represent.

Many U.S. opinion leaders are adamant that in Europe's parliamentary democracy "the government" is just too powerful.

In the United States, Congress is really the branch of government that often stops the people's business from being taken care of.