The Democrats claim many Americans will only be able to afford the therapies that emerge if the government caps their prices.
But price controls are a counterproductive way to bring down the cost of vaccines and drugs to treat diseases. They’d not only result in shortages but also make it harder for researchers to develop lifesaving drugs.
By contrast, injecting transparency into the pharmaceutical market at home and negotiating better trade deals abroad would yield lower drug prices without jeopardizing medical progress.
Congressional Democrats have been doing their best not to let this crisis go to waste. Initial drafts of the first coronavirus stimulus package – an $8.3 billion spending bill Congress passed March 4 – included a provision that would have allowed the government to dictate the price of any COVID-19 vaccine developed using federal funds.
The price controls didn’t end up in the final version of the bill. But there is plenty of price control legislation lingering on Capitol Hill.
For example, Democratic House Speaker Nancy Pelosi’s bill – called the Lower Drug Costs Now Act – would allow the federal government to effectively set the price of up to 250 brand-name drugs each year. It would also cap prices for these drugs at the average price in six other developed nations.
That would kneecap drug research. On average, it takes $2.6 billion and up to 15 years to bring a drug from the lab to pharmacy shelves. Just over 10 percent of drugs that begin clinical trials ever receive U.S. Food and Drug Administration approval.
In other words, about nine in 10 compounds that make it to testing in humans fail. All the years and money spent developing them are essentially for naught.
Investors only fund these risky projects if they foresee a reasonable chance of recouping their money. That’s why so much drug research occurs in the United States, which has fewer rules governing drug prices than other developed nations. U.S. companies develop half of all new medicines; European firms are responsible for just a third.
It’s no wonder the White House Council of Economic Advisers estimates that Pelosi’s bill would result in the development of 100 fewer drugs over a decade.
Still, many Americans could use some help at the pharmacy counter. Nearly 30 percent of Americans say they haven’t taken a prescription as directed because of cost. That’s dangerous – and can even be deadly.
Congress can lower drug prices by injecting some sanity into the pharmaceutical supply chain.
Right now, insurance companies hire “pharmacy benefit managers” to negotiate with pharmaceutical manufacturers over whether to include drugs on the insurers’ lists of covered drugs, or formularies, and at what price.
Three pharmacy benefit managers control more than three-quarters of the market, so they have a lot of leverage to command discounts, or rebates, from drugmakers in exchange for placement on a formulary.
Drug makers have little choice but to acquiesce. If they decline to play ball with the pharmacy benefit managers they could be unable to sell their wares to all the patients those pharmacy benefit managers represent.
Pharmacy benefit managers keep some of the rebates they secure and share the rest with their insurer clients, who theoretically pass along at least a portion of them to beneficiaries as lower premiums.
Those rebates amount to billions of dollars. Giving them directly to patients would make a huge difference.
For example, if 80 percent of rebates were shared with patients, seniors who take diabetes medicines could save an average of $350 a year. Medicare beneficiaries would save $25 billion over a decade if rebates were passed along at the point of sale.
Lawmakers could also cap out-of-pocket costs in Medicare’s drug benefit, which is called Part D. About 2 percent of Part D beneficiaries spend more than $5,000 out of pocket on drugs each year. Implementing a $2,500 out-of-pocket cap in Part D would save patients more than $7 billion over a decade, according to an analysis from the American Action Forum.
To supplement congressional action, the U.S. trade representative could appoint a dedicated pharmaceutical negotiator. Currently, countries with government-run health systems force American companies to sell their drugs abroad at a steep discount. These firms raise prices in the United States to make up the difference.
A dedicated pharmaceutical trade negotiator could work to ensure that other countries pay more reasonable prices for the fruits of American innovation.
Price controls would destroy America’s pharmaceutical sector, which provides the world with treatments for not just for deadly viruses but for chronic conditions affecting millions of Americans. There are far more responsible, sustainable ways to make drugs more affordable.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on Twitter @sallypipes.
In coronavirus battle, price controls would make it harder to develop lifesaving drugs
Sally C. Pipes
As scientists race to develop vaccines and treatments for COVID-19, Democrats in Congress have renewed their push for price controls on drugs designed to protect us from the respiratory disease caused by the coronavirus, along with other illnesses.
The Democrats claim many Americans will only be able to afford the therapies that emerge if the government caps their prices.
But price controls are a counterproductive way to bring down the cost of vaccines and drugs to treat diseases. They’d not only result in shortages but also make it harder for researchers to develop lifesaving drugs.
By contrast, injecting transparency into the pharmaceutical market at home and negotiating better trade deals abroad would yield lower drug prices without jeopardizing medical progress.
Congressional Democrats have been doing their best not to let this crisis go to waste. Initial drafts of the first coronavirus stimulus package – an $8.3 billion spending bill Congress passed March 4 – included a provision that would have allowed the government to dictate the price of any COVID-19 vaccine developed using federal funds.
The price controls didn’t end up in the final version of the bill. But there is plenty of price control legislation lingering on Capitol Hill.
For example, Democratic House Speaker Nancy Pelosi’s bill – called the Lower Drug Costs Now Act – would allow the federal government to effectively set the price of up to 250 brand-name drugs each year. It would also cap prices for these drugs at the average price in six other developed nations.
That would kneecap drug research. On average, it takes $2.6 billion and up to 15 years to bring a drug from the lab to pharmacy shelves. Just over 10 percent of drugs that begin clinical trials ever receive U.S. Food and Drug Administration approval.
In other words, about nine in 10 compounds that make it to testing in humans fail. All the years and money spent developing them are essentially for naught.
Investors only fund these risky projects if they foresee a reasonable chance of recouping their money. That’s why so much drug research occurs in the United States, which has fewer rules governing drug prices than other developed nations. U.S. companies develop half of all new medicines; European firms are responsible for just a third.
It’s no wonder the White House Council of Economic Advisers estimates that Pelosi’s bill would result in the development of 100 fewer drugs over a decade.
Still, many Americans could use some help at the pharmacy counter. Nearly 30 percent of Americans say they haven’t taken a prescription as directed because of cost. That’s dangerous – and can even be deadly.
Congress can lower drug prices by injecting some sanity into the pharmaceutical supply chain.
Right now, insurance companies hire “pharmacy benefit managers” to negotiate with pharmaceutical manufacturers over whether to include drugs on the insurers’ lists of covered drugs, or formularies, and at what price.
Three pharmacy benefit managers control more than three-quarters of the market, so they have a lot of leverage to command discounts, or rebates, from drugmakers in exchange for placement on a formulary.
Drug makers have little choice but to acquiesce. If they decline to play ball with the pharmacy benefit managers they could be unable to sell their wares to all the patients those pharmacy benefit managers represent.
Pharmacy benefit managers keep some of the rebates they secure and share the rest with their insurer clients, who theoretically pass along at least a portion of them to beneficiaries as lower premiums.
Those rebates amount to billions of dollars. Giving them directly to patients would make a huge difference.
For example, if 80 percent of rebates were shared with patients, seniors who take diabetes medicines could save an average of $350 a year. Medicare beneficiaries would save $25 billion over a decade if rebates were passed along at the point of sale.
Lawmakers could also cap out-of-pocket costs in Medicare’s drug benefit, which is called Part D. About 2 percent of Part D beneficiaries spend more than $5,000 out of pocket on drugs each year. Implementing a $2,500 out-of-pocket cap in Part D would save patients more than $7 billion over a decade, according to an analysis from the American Action Forum.
To supplement congressional action, the U.S. trade representative could appoint a dedicated pharmaceutical negotiator. Currently, countries with government-run health systems force American companies to sell their drugs abroad at a steep discount. These firms raise prices in the United States to make up the difference.
A dedicated pharmaceutical trade negotiator could work to ensure that other countries pay more reasonable prices for the fruits of American innovation.
Price controls would destroy America’s pharmaceutical sector, which provides the world with treatments for not just for deadly viruses but for chronic conditions affecting millions of Americans. There are far more responsible, sustainable ways to make drugs more affordable.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on Twitter @sallypipes.
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.