When Drug Prices Mean More Than Sick Patients

The Department of Health and Human Services has a new plan to cut drug spending. President Trump claims this reform marks "a revolutionary change" for American patients.

He’s right, but it’s not a change for the better, which is why Senate Finance Committee Chairman Chuck Grassley (R-Iowa) recently announced he opposes the plan, claiming it would hurt innovation.

In an effort to lower drug spending in Medicare Part B – the component of Medicare that covers advanced, physician-administered medicines – the agency plans to tie U.S. drug prices to the artificially low prices paid in 14 other countries.

This reform would do Medicare patients more harm than good. Price controls may save the government money in the short term, but they would slow the rate of medical progress. 

HHS's proposal is aimed at a very real problem. Americans pay far more for their brand-name medicines than patients in other developed countries. By contrast, generic medicines, which account for about 90 percent of all prescriptions, typically cost much less in America. 

In most developed countries, the government has enormous power to dictate the price of prescription drugs. And governments use this power to keep prices low, often at the expense of providing access to the newest breakthrough medicines. The result is that American patients shoulder more of the global research burden by paying more for drugs.

President Trump has proposed addressing this inequity by taking aim at "the global freeloading that forces American consumers to subsidize lower prices in foreign countries."

This is the right instinct. But oddly, instead of pushing back against the unfair pricing policies used abroad, HHS wants to copy them.

Creating just a single new medicine costs an average of $1.7 billion and can take more than a decade. And only a handful of drugs sell enough to cover their research and development costs -- much less subsidize ongoing research into new medicines.

If the federal government is free to dictate lower drug prices for Medicare Part B, drug developers will have a harder time recouping those investments once a drug hits the market, which means a number of potential drugs might leave the starting blocks.

Medicare Part B covers some of the sickest patients, often with life-threatening illnesses. Progress towards new therapies for illnesses like Alzheimer's, cancer, multiple sclerosis, and Parkinson's disease would slow. New product launches would become rare events, whereas they are common today. 

U.S. patients have more and faster access to the newest drugs than any other country. 

Consider that 89 percent of 290 new drugs released between 2011 and 2018 were available in the United States at the time of their initial launch. By contrast, German patients had access to only 62 percent of these medicines, Japan was 50 percent, Switzerland 48 percent and France 40 percent, according to a Galen Institute analysis of other studies.

And U.S. cancer patients fared even better: 96 percent of 82 new cancer drugs over the same time period. Second-best Germany came in at 73 percent.

For patients battling cancer, barriers like these can be deadly. Delayed access to new drugs is the unfortunate reality for too many people around the world. If we import their price controls, we will import their diminished access to new prescription drugs as well.

Of course, some potentially life-saving drugs would never enter the development pipeline. You can't impose price controls or limit access to a drug that was never invented in the first place.

Ironically, Medicare Part D, the prescription drug benefit that relies on a market-based approach, has been very successful in containing drug costs. From its inception in 2006 through 2018, per-enrollee spending declined in about half of the years. 

HHS's proposal fails at every one of its stated goals. It doesn't hold foreign countries accountable for undervaluing the latest medicines, nor does it increase access to advanced drugs for American patients—in fact, it does the opposite.

The only thing this reform succeeds in doing is putting the financial interests of the federal government before the well-being of actual patients. That's not what President Trump promised, and it's not what U.S. patients want.

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.