Health Care Needs Effective Reforms, Not the CREATES Act

Congress is back in session. With the election looming, this means a frenetic dash to pass bills on a number of big ticket items, including the budget and Zika funding. While the legislative fight over these issues will likely dominate the headlines, we cannot forget about other below-the-radar, but nevertheless critical, issues. One critical, but below-the radar, issue is a Senate bill that could force the manufacturer of innovative drugs that are used to treat serious illnesses to prematurely turn over samples and patented information to generic manufacturers.

The legislation in question is called the Creating and Restoring Equal Access to Equivalent Samples Act (CREATES Act of 2016). In a classic sense, the CREATES Act is an example of the drunkard’s search, referring to the old joke about the drunk looking for his keys under the streetlight, not in the park where he lost them, because “this is where the light is.”

Many supporters of the CREATES legislation think that the legislation will be the answer to rising drug prices. Last week, Senator Amy Klobuchar (D-MN), reiterated her support for this effort because it would “…deter pharmaceutical companies from blocking cheaper generic alternatives from entering the marketplace.” Scott Knoer of the Cleveland Clinic echoed similar sentiments in a recent Time opinion piece.

While advocates of the CREATES Act are trying to use public outrage over the drug price debate to garner congressional support, the reality is, as I explained in an earlier post, that the CREATES Act actually un-levels the playing field between branded and generic pharmaceutical manufacturers, dis-incentivizes pharmaceutical innovation, and empowers trial lawyers risking a flood of costly litigation.

Just as importantly, the drugs impacted by the legislation, many of which can only be used in a hospital setting, have large potential risks associated with them including serious infections, severe allergic reactions, and potential liver damage. Due to these risks, the FDA has established safeguards for these drugs (known as REMS with ETASU). The CREATES Act dilutes these safeguards, potentially putting public health at greater risk.

While the CREATES advocates tie this bill to the debate over health care costs, in reality, the problem of rising health care costs is a systemic issue. Effectively controlling health care costs requires reforms that address the core problems that afflict our current health care system.

These reforms should begin by correcting the tax distortion that was created by the wage and price controls of World War II, when employers started offering untaxed perks, such as paying for employees’ health insurance, as labor incentives. Fast forward 70 years, these distortions (the tax-incentives favoring employer-provided health insurance) have helped create our current sclerotic health insurance market that is plagued with coverage gaps and inefficiencies.

Addressing these problems require reforms that expands the availability and benefits from Health Savings Accounts, and provides age-based refundable tax credits to individuals who purchase health insurance on the individual market. Such reforms would also empower consumers (not their employers) to once again control the type of health insurance that best suits their needs.

Additionally, it makes no sense to restrict consumers from purchasing health insurance across state lines. The ability of consumers to purchase most other goods and services anywhere in the country enables them to obtain higher quality products at more affordable prices. The same could be true for health insurance. When analyzing the impacts from empowering a national health insurance market, Stephen Parente and Roger Feldman from the University of Minnesota concluded that such a market would “significantly reduce” the number of uninsured people while simultaneously reducing overall insurance costs.

Effective reforms also must address the problems of frivolous litigation and overly burdensome regulations that restrict medical competition.

In combination, reforms such as these are the best way to improve the incentives in the health care sector, increase health care quality, and lower health care costs over the long-term.

In a classic drunkard’s search, the CREATES Act is a knee-jerk reaction to news cycles, not a substantive solution to some of the root problems plaguing the U.S. health care system. Consequently, it risks continued pharmaceutical innovation and public safety while failing to improve health care quality or control rising health care costs.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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