By Steven M. Tepp
Tepp is the president and founder of Sentinel Worldwide and Professorial Lecturer in Law at George Washington University Law School. He previously served as senior counsel for Policy and International Affairs at the U.S. Copyright Office and chief intellectual property counsel for the Global Intellectual Property Center at the U.S. Chamber of Commerce.
The Trump administration claims its latest drug pricing proposal will be a boon for patients struggling to afford their medications. Unfortunately, this isn’t the case.
The plan, proposed by the Department of Health and Human Services, would impose price controls on complex medicines covered through Medicare. Like all price control schemes, the move would backfire; sacrificing patients’ access to lifesaving medications and undermining future innovation, all to pinch a few extra pennies in the short term.
Critics point out that other developed nations pay significantly less for medicines. But there’s an important reason for this price discrepancy. When it comes to medical innovation, you get what you pay for.
The United States stands head and shoulders above the rest of the world when it comes to top-notch health care. Many other countries have government-run health systems that set the price of drugs. The politicians in those countries tout the lower prices they imposed, but fail to appreciate the downsides — namely, a lack of access to new drugs.
Because U.S. drug prices are determined by the market, drug companies actively seek to introduce their products in the United States first. Patients in the United States had access to nearly twice as many new medicines as patients in Japan, Canada, and France between 2011 and 2017.
The result? Over the fifteen years from 1997-2012, the United States reduced the cancer mortality rate more than countries with government-run systems.
Disregarding the health consequences, foreign governments continue to use a variety of methods — including weakening patent rights and outright price fixing — to undercut U.S. innovators.
This administration has made it a priority to rectify those unfair practices through trade policy. Officials appear to have succeeded with the United States-Mexico-Canada Agreement, which would require significant improvements to our neighbors’ intellectual property laws.
HHS’ new proposal comes in stark contrast to that common sense policy. Instead of getting other countries to pay their fair share, the United States would cave to their tactics.
Under the proposed plan, Medicare drug prices would no longer be set through negotiation, as they are now. Instead, Medicare would fix reimbursements at a percentage of the average price paid by certain foreign governments. The model is called international price indexing.
It makes no sense to try to reduce healthcare costs by punishing one of the most innovative sectors in the American economy. It makes even less sense to adopt the failing policies of foreign governments.
U.S. biopharmaceutical research and development is the leading source of medical innovation. Drug companies invest some $90 billion annually into U.S. research efforts, which produce half of all new medicines.
Research companies’ substantial investment in new therapies is riddled with risk. It takes approximately $2.6 billion and between 10 to 15 years to create one new medicine. And only one in eight experimental drugs that enters clinical trials ever reaches pharmacy shelves.
If the government can simply dictate artificially low prices, it won’t allow companies the same opportunity to recoup their development costs and deliver a return for investors. As a result, investors will flee to less risky industries. This would jeopardize the 4,000 therapies currently in development in the United States for cancer, Alzheimer’s, diabetes and other debilitating diseases — along with future research projects.
The proponents of international price indexing try to wave away the harm with a flurry of distractions: claims about advertising budgets, executive salaries, and so on. But this doesn’t change the common sense truth that taking money away from innovators will reduce future innovation.
That’s bad for us all. Breakthrough treatments can provide net savings by reducing or avoiding hospital visits altogether. Spending upfront on medicines can keep patients healthy and thus avoid hospital costs that can be ten times the cost of the medicines themselves.
High healthcare costs deserve serious attention. But the solution needs to be holistic. It should be approached with an appreciation of the need for pro-growth, pro-innovation policies that offer us not only a future we can afford, but one that is better than today.