Sally Pipes: Democrats’ Drug Pricing Reforms Aren’t What They Seem

As part of their spending bill, Congressional Democrats are advancing legislation that’ll empower Medicare to “negotiate” drug prices in the program’s Part B and Part D benefits. They insist this policy enjoys broad support among voters.

But they’re misleading the public.

What Democrats are proposing is in fact a sweeping system of price controls. Evidence from abroad demonstrates that such schemes are certain to restrict access to new medicines, particularly for those who are older, living with disabilities, or fighting serious illnesses.

To the extent that Americans support “negotiations,” it’s only because they’ve been lied to.

The two drug-pricing reforms under consideration by Congressional Democrats would give the Department of Health and Human Services immense power to dictate the prices Medicare pays for drugs—an arrangement more akin to a shakedown than a negotiation.

Under the House proposal, the price that Medicare pays for the most popular brand-name drugs would be capped at 120% of the average price paid in six foreign countries: Australia, Canada, France, Germany, Japan, and the United Kingdom. Companies that refuse to sell their medicines at this artificially low price would be subject to an excise tax of as much as 95% on each drug’s gross sales.

In other words, drug companies would be given a choice: Either submit to the government’s pricing demands, or forfeit nearly every penny a medicine earns.

The Senate Finance Committee’s proposal takes a domestic tack, limiting Medicare’s drug prices to the prices the Department of Veterans Affairs’ health system pays.

In deciding prices, the VA and the governments of Canada, the UK, and other nations calculate what they are willing to pay for certain drugs with a metric known as a quality-adjusted life year or QALY.

Take my native Canada. By some estimates, that government’s drug-pricing board values one year of perfect health at $50,000 Canadian (or about $40,000 US). From this benchmark, the government can then calculate whether a drug extends a patient’s life sufficiently to justify its costs. If it fails this test, the government doesn’t cover the medicine.

There is plenty to find reprehensible about such analyses. For one, they place a dollar value on human life—something no government should do.

Such analyses also lead to severe restrictions on which drugs patients can access. Of the new medicines launched between 2011 and 2018, for instance, fewer than half were available to Canadian patients. And just 60% were available to patients in the UK. By comparison, American patients had access to nearly 90%.

QALY analyses are also inherently discriminatory, as they place less value on the lives of sick and disabled patients compared to healthy ones. In practice this means that health systems which rely on QALY calculations are less willing to pay for medicines that benefit chronically ill patients or those with physical impairments.

By basing Medicare’s drug prices on those paid at the VA—or Canada and the UK among others—lawmakers are in fact smuggling discriminatory QALY-based policies into Medicare through the backdoor.

These facts rarely reach patients, of course, which is why the idea of drug price “negotiations” polls well. But as I detail in a new issue brief, when Americans learn the facts about price-control policies, they reject them by wide margins.

In a recent survey of likely voters, nearly 78% opposed the use of QALYs under Medicare. When told that the Democrats’ drug-pricing policies would likely restrict access to medicines for older Americans and those with disabilities, 72% said they were less likely to support the reform.

After learning that these reforms would take treatment decisions out of the hands of doctors, leaving them to bureaucrats and their calculations of the value of a human life, three quarters of voters were less likely to support these reforms.

Democrats aren’t looking to encourage “negotiations.” They’re simply trying to save the government money on drugs by dictating the price. Their strategy for achieving this goal is to deny access to the latest medications—especially to the oldest and sickest patients.

This policy will garner public support only to the extent Democrats continue to hide the truth.

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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