Last week, House Democrats introduced H.R. 3, a bill that would empower the federal government to set prescription drug prices for the entire U.S. pharmaceutical market.
The measure comes at the worst possible time. The rapid development of effective vaccines against COVID-19 has demonstrated what can happen when the drug industry is given the resources and market incentives to innovate. Decreeing lower prices by fiat will deprive these firms of the money they need to research and develop new cures.
H.R. 3’s “negotiations” are anything but. The bill explicitly caps a drug’s maximum price at a level in line with what other developed nations pay for that drug. Those nations all impose strict price controls on prescription medicines.
In other words, H.R. 3 outsources America’s drug-pricing policy to foreign bureaucrats — and imports their price controls. In so doing, it would destroy the market-based system that has allowed America to lead the world in medical innovation for decades.
It takes roughly $2.6 billion and more than a decade to develop a new drug, on average. Just 12 percent of potential drugs that enter clinical trials end up garnering approval from the Food and Drug Administration.
Simply put, drug research is a risky business enterprise. Pharmaceutical firms and their investors won’t take on that risk if government price controls deprive them of the possibility of an outsized profit.
The result will be a marked decline in the rate of medical innovation in the years ahead. According to one recent analysis by the consulting firm Vital Transformation, the number of medicines developed by biotech startups and smaller firms would fall by 61 over the next decade if H.R. 3 became law.
The bill’s price controls would also have a devastating impact on our economy. That same report estimates that H.R. 3 will destroy 200,000 jobs in the drug sector alone, and a total of 1 million across all industries.
The House’s scheme would also cut off access to those medicines which do reach the market. Price controls reduce the incentive for drug firms to bring their products to a given market, or to produce as many of them as patients demand.
Look at what’s happened in foreign countries whose governments “negotiate” drug prices on behalf of their constituents.
Since 2011, the drug industry has launched more than 350 new medicines for everything from cancer to viral infections and heart disease. Of that group, almost 90 percent are available here in the United States. By comparison, only 63 percent were available to patients in Germany. Britons had access to 59 percent of them; Canadians could get less than half of them.
This helps explain why Europe’s COVID-19 vaccination campaign has lagged the United States’. The European Union insisted on negotiating with vaccine makers to secure lower prices. Such haggling delayed the rollout of vaccines across the continent, resulting in a new wave of infections and consequent lockdowns.
Europe’s bargaining may save its member governments a few billion dollars — at the cost of many times that figure in economic activity, not to mention thousands of additional deaths.
America’s market-based drug-pricing system is a major reason why scientists were able to respond to COVID-19 with such amazing speed. To throw away this valuable institution by enacting price controls — as H.R. 3 does — is nothing short of lunacy.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare 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. Read Sally Pipes’ Reports — More Here.