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Drug reference pricing threatens patient health, innovation



By Erik Sass, TES Editor-in-Chief


Some recent proposals to lower drug prices are not just counterproductive but dangerous, according to an international panel of expert economists convened by the Competitive Enterprise Institute at the National Press Club on Tuesday, November 5, 2019. The panelists warned that “foreign reference pricing” — a practice which forces lower prices on drugs based on specious comparisons with prices in other countries — will result in shortages of new medicines in the near term and deter innovation in the long term, meaning fewer breakthrough treatments.


Foreign reference pricing, as recently proposed in the United States, would peg prices for drugs to an international index based on prices for the same drugs in countries including Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, and the United Kingdom. However, the practice is inherently skewed because many of those countries have already instituted controls which keep drug prices artificially low; in other words, the U.S. would simply be importing market-distorting measures it criticizes in other countries to its own shores.


As abundant research has shown, these price control regimes have not only resulted in drug shortages in many of the countries that have implemented them, but also serve to undermine confidence that drug companies will be able to recoup the massive investments required to develop new drugs — thus sacrificing miracle cures as yet undiscovered.


Patrick Hedger, research fellow at the Competitive Enterprise Institute, acknowledged that high drug prices are a problem, but cautioned that reference pricing is not a solution: “Without question, something needs to be done about the cost of prescription drugs and healthcare in general in the U.S. However, looking to countries with nationalized healthcare systems is not the answer. Patients in those countries face their own grim costs, such as the lack of new, lifesaving treatments.”


The risk of shortages is very real, according to John Adams, chair of the Best Medicines Coalition and CEO, Canadian PKU and Allied Disorders, who noted that “patients in Canada and many other countries are deprived the opportunity to be treated with the most advanced medicines because of our healthcare system. This is especially so when science can move a disease from untreatable to treatable or, in this new era, to curable. While the U.S. clearly needs new solutions that will help patients afford their medications, it is past the time when patients subsidize healthcare by suffering and dying when new therapies are available.”


Barbara Kolm, director and founder of the Austrian Economics Center, highlighted the certain losses in innovative new treatments that would result from foreign reference pricing: “The U.S. healthcare system, despite its flaws, is remarkable for its ability to generate astonishing medical advances and put those advances to work for patients. There’s no question a foreign reference pricing policy for prescription drugs would significantly impact the private investments that drive the lion’s share of research and development in this field. In the end, no one would win.”


Erik Sass is editor-in-chief of The Economic Standard.