The White House Council of Economic Advisors just issued a damning indictment of a House bill (H.R. 3) designed to lower drug prices. According to White House economists, the measure endorsed by Nancy Pelosi and her fellow House Democrats could prevent the development of 100 new drugs over the next ten years. CEA concluded “the threat [the bill] poses to continued medical innovation will harm American patients in ways that far outweigh any benefits.”
This analysis is spot-on.
That’s why it’s so surprising that the Trump administration is pushing forward the same policy idea embedded in the House bill, and one that would also have a disastrous effect on medical progress and patients with unmet medical needs. The Administration’s own math proves it.
One of H.R. 3’s most influential provisions would require the Secretary of Health and Human Services to “negotiate” the price of at least 50, and as many as 250, common, brand-name drugs. These would be negotiations in name only—H.R. 3 prohibits the negotiated prices from exceeding 120 percent of the average prices paid in six other developed countries, including Canada, France, and the United Kingdom.
These price controls—enforced by referencing the prices in the six countries—could reduce drug companies’ revenues by $1 trillion over the next decade, according to the Congressional Budget Office. And since drug firms generally devote 15 to 20 percent of revenues to creating new medicines, that means they’ll spend about $200 billion less on research and development.
That precipitous drop in R&D spending would be disastrous for patients. The CEA pegs the cost of developing a new drug at roughly $2 billion. So it concludes the bill would result in 100 fewer treatments—$200 billion divided by $2 billion.
The Trump administration is right to condemn H.R. 3. Any reform that deprives patients of new treatments for Alzheimer’s, Parkinson’s, ALS, cancer, and other debilitating diseases (and undermines U.S. biomedical leadership) deserves to be rejected out-of-hand.
But if the House bill poses an unacceptable threat to innovation, then the administration’s own drug-pricing reform isn’t much better. If recent news reports are accurate, the administration is getting ready to push forward a proposal for an “international pricing index,” a type of price control that, like Pelosi’s bill, would be set by referencing prices in other countries.
There are some superficial differences between the two proposals, of course. The administration’s proposed IPI index would cap U.S. drug prices at 126 percent of the average prices paid in over a dozen advanced countries, rather than Nancy Pelosi’s proposed upper limit of 120 percent of the average prices paid in six countries.
And the administration’s plan would only target drugs paid for through Medicare Part B, which covers advanced, potent treatments administered at a doctor’s office or infusion center. So it’s narrower than H.R. 3, which covers both public and private insurers.
But the administration’s proposal is still a terrible idea. If we adopt all of the CEA’s methodological assumptions, once the IPI proposal is fully implemented, more than one in every five innovative physician-administered medicines expected to make it to market in the following decade would never be developed. Keep in mind these are among the most advanced medicines under development, like immunotherapies for cancer and gene therapies for rare diseases. A major slowdown in innovation would condemn many patients to an early, and otherwise avoidable, grave.
Over the past 11 years, the U.S. has approved an average of 6.5 of these advanced medicines a year, meaning there would be on average 1.4 fewer of these new treatments each year.
So, out of every five potential new treatments for cancer or rare genetic disorders, which one are we willing to take off the list?
The White House deserves credit for highlighting the immense damage of H.R. 3’s price controls. Patients can only hope that administration officials will heed their own warning—that international reference pricing will harm patients “in ways that far outweigh its benefits.”