>The first is that it's an international market, so any given country is better off to underpay and free ride on the R&D paid for by other countries.
By "free ride on the R&D paid for by other countries" the US market bought R&D is a especial fit for this outlook, but without any hard figures to hand, it is perhaps easier to flatteringly assume its stability. Others can do R&D in their own ways, including very significantly University research besides Nationally funded research. Pure commercial health research is problematically burdened by interest in profitability of potential treatments. Its unfortunate that in this age we are to assume international competitiveness in health and all important technologies as given and unavoidable, over cooperation. Cooperation is what we do with people we care enough for.
> The government is then put in the position of choosing who to make unhappy.
In UKs free health service practice most of the treatment decision is made by the treating doctors, who select the best treatment available to them for the patient. The doctors quite rarely don't have most expensive treatment option available and can advise that one is available for private purchase occasionally. This is unfortunate but such is the nature of illness.
Overall, the selection of treatment to patients is overwhelmingly worked out by doctors, not the government. There is a certain delay and compromise involved in the government selecting and making treatments available to the doctors, thats a matter contested between doctors and government, not patients and government.