Health and Human Services Secretary Alex Azar just released a sweeping proposal that would drastically change how Medicare pays for advanced cancer therapies and other potent medicines. The plan relies on foreign price controls to reduce drug spending by $17 billion over five years.
Although drug spending may decline, as the Congressional Budget Office has noted, the plan could result in increased healthcare spending elsewhere, as patients will inevitably lose access to medicines. So while the savings is questionable, the negative health impact on patients is certain. Sec. Azar ought to find a better way.
The proposed changes would affect Medicare Part B, which covers drugs administered in doctor’s offices, clinics, and hospitals. These medicines include injectable treatments for cancer, multiple sclerosis, rheumatoid arthritis, osteoporosis, and other serious diseases.
Doctors buy these medicines themselves and then bill Medicare for reimbursement after treating patients. The federal government pays doctors the average U.S. price of the drug, plus a markup to cover administrative costs.
Administration officials correctly note these drugs cost more in the United States than in other countries, which impose strict price controls on medications. These countries contribute relatively little to global research and development efforts, but they reap the rewards of R&D conducted in the United States.
To end this “global freeloading,” the administration wants to create an “International Pricing Index.” Medicare would no longer set reimbursements based on the average U.S. sales price. Instead, it would tie reimbursements to the prices paid in 16 other countries, including the Czech Republic, Finland, Greece — a practice known as “reference pricing.”
These countries enjoy lower drug costs, thanks to their price controls. But this comes at a cost: Reduced access to medicines.
Take the United Kingdom, where a government agency makes unilateral decisions about which medications are worth the money. Earlier this fall, the government refused to cover a multiple-sclerosis medication that had been shown to keep patients out of a wheelchair for up to seven additional years.
British patients simply can’t obtain many of the newest medications that Americans take for granted. Americans could access roughly 90 percent of all the medicines released worldwide between 2011 and 2017. British patients could only access two-thirds of those drugs.
In short, the administration’s proposal would lower domestic prices — but only by restricting patients’ access to state-of-the-art medicines.
Imposing price controls would also have a chilling effect on research and development. Pharmaceutical investors won’t pour billions into risky research projects if there’s little chance to earn a return. Breakthrough cures for Alzheimer’s and cancer may go undiscovered, dooming millions of future patients to suffering and premature death. Since the United States is the global leader in developing innovative medicines, the drop off in research investment will also harm the 800,000 Americans employed by drug companies.
President Trump has repeatedly promised to protect American workers and consumers from foreign freeloaders. His trade negotiators have bashed other countries’ reference pricing schemes, which “undermine incentives for innovation in the health care sector” and do not “appropriately recognize the value of innovative medicines.” And his administration has successfully strengthened intellectual property protections in the revised free trade deal with South Korea and the new United States-Mexico-Canada Agreement. These stronger IP protections will help create more accurate, market-based prices for U.S. drugs in these markets.
Given the anti-price-control actions taken by the rest of the administration, it’s shocking that Sec. Azar is embracing such a wrongheaded policy. The proposal might save the government some money, but it would result in layoffs and make it far harder for patients to get the medicines they need. President Trump would be wise to scrap it and instead force our trading partners to raise their standards.