Drug Pricing Deal Disrupts Development of New Cures

 With news that Sen. Joe Manchin (D-W.Va.) would not come to an agreement on tax and climate provisions of the Build Back Better Act, the focus of the package now shifts to the healthcare related parts of the deal. The most prominent portion of the agreement is one that would allow Medicare to negotiate with drug makers to lower the price of prescription drugs for beneficiaries of the program. This is aimed at lowering costs for the nearly 83 percent of Americans who find affording prescription medication difficult.

While the concept of “negotiation” might seem like a reasonable, market-based solution, that is not the reality. In truth, this is a backdoor way of implementing government price controls. A truly fair negotiation requires both sides to act in their own self-interest, making compromises to come to a mutually beneficial outcome. However, when one side in the negotiation is quite literally a government entity, the balance of power shifts mightily.

Under the current proposal, the government can implement a tax of up to 1,900 percent if a drug maker were to fail to agree to the “fair” cost determined by the government’s Medicare negotiators. When one side in a negotiation has the ability to levy taxes and fines for disagreeing, there’s not much of a negotiation at all. Rather, what’s being proposed is flatly coercion in its purest form. 

This framework will also derail investment and innovation in this space. Companies that create new cures invest millions of dollars into development with the expectation that they’ll be able to set prices, recoup investment, and stay in business. With prices for a large portion of the market being up to arbitrary government “negotiations,” there is less certainty, making investment and innovation riskier.

Adding this unnecessary element of risk will invariably lead to the development of fewer cures and – in the worst case – nationwide drug shortages. Nations that adopt some form of price controls or “negotiation” typically have less access to life-saving medication. In instances where they do have access, it often takes much longer for these drugs to come to market than it does in the U.S. Implementing this foolish negotiation scheme would give away America’s competitive advantage in this space.

Another sad irony of this proposal is that it would harm lower cost generic and biosimilar companies as much – if not more – than the higher priced brand-name pharmaceutical companies. They too would be victims to the air of uncertainty created by these negotiations. 

It takes years to develop these affordable alternatives and longer still to resolve patent litigation before they can finally be launched. Generics and biosimilars rely heavily on the ability to conduct market research to know how best to approach bringing their product to market. With decisions on whether a brand-name product should be subject to this negotiation, generic and biosimilar manufacturers would be left in the dark regarding key development and investment decisions. This could delay that process further, leaving patients without affordable alternatives for longer, or keep them off the market in some instances altogether.

These facts are ironic, as generic and biosimilar products may even hold the solution to the problem the Build Back Better Act is trying to solve. The renowned data firm IQVIA estimates the government could save roughly $30 billion per year by increasing the availability of these low-cost alternatives. On the other hand, the Congressional Budget Office estimates the drug price negotiation provisions will save Medicare $18-24 billion per year – and that is if the claims of its sponsors can be taken at face value. Free market competition is a more efficient solution according to public estimates than a government command and control model.

The pharmaceutical ecosystem in the United States is certainly very complicated. Brand name companies develop innovative cures. The nation got to see that on full display with their record development of multiple effective vaccines to fight the COVID-19 pandemic in record time. Generic manufacturers seek to follow up that innovation by adding similar options for patients and families at a lower cost. Both are necessary to ensure our capabilities adapt and advance while simultaneously avoiding pricing anyone out of the market. 

The Medicare negotiation proposal in the latest iteration of the Build Back Better Act seems determined to cause harm to all parts of this ecosystem with a painfully simplistic solution to a complex issue. Having a nameless government bureaucrat decree that prices ought to be lower will not change the economic realities surrounding the years of investment that go into getting these cures into the hands of those who need them most. Nor will it improve outcomes for patients.

 

Dan Savickas is the director of tech policy at the Taxpayers Protection Alliance.

https://www.realclearhealth.com/articles/2022/07/26/drug_pricing_deal_disrupts_development_of_new_cures_111380.html