By Edward Longe, American Consumer Institute
One of the most pressing problems facing Americans and the U.S. healthcare system is the affordability of prescription drugs. An estimated 58 million Americans face medication insecurity and have “been unable to afford prescribed drugs at least once in the last 12 months.” The Organization for Economic Co-Operation and Development claimed that per capita, Americans pay $1,220 per year on medication. Meanwhile, 34 million American adults know “at least one friend or family member in the past five years who died after not receiving needed medical treatment because they were unable to pay for it.”
Recent proposals to establish price controls to address medication insecurity and lower the price of medications would set upper limits on what pharmaceutical companies can charge patients. While the objective of price controls is admirable and enjoys considerable public support, price controls would seriously damage innovation, and limit patient access to potentially life-saving medication.
The most recent legislative proposal to impose stringent controls on the amount manufacturers can charge for their medication was Representative Elijah Cummings’ Lower Drug Costs Now Act, which passed the Democratic-controlled House on a party-line vote back in late 2019. President Trump also issued an executive order that would prevent the Medicare program from paying more for “prescription drugs or biological products than the most-favored-nation price.”
To understand why price controls would harm innovation, we need a better understanding of the fundamental problem with drug manufacturing – the high cost of research and the high failure rate. The Massachusetts Institute for Technology School of Management recently reported that “nearly 14% of all drugs in clinical trials win approval from the FDA,” with the cost of developing a new drug standing at $985 million, according to the American Medical Association. It also takes an estimated twelve years for a drug to make it from a pharmaceutical company research department to FDA approval.
The high cost of developing drugs, the low success rate, and the length of time to win FDA approval means that pharmaceutical companies are undertaking significant risk in developing medication and provides an explanation to why the cost of prescription medication is so high. In effect, pharmaceutical companies rely on high prices to support the costs of developing their life-saving products.
The Biotech Innovation Organization (BIO) warned that had the U.S “adopted European-style price controls on pharmaceutical drugs from 1986-2004,” the pharmaceutical industry “would have produced 117 fewer new medicine compounds for the world.” The warning from BIO could not be clearer, using price controls to cap the cost of prescription medications will have catastrophic implications for innovation and the development of future medications.
Highlighting the damage price controls could potentially have on the production of future medications, the Manhattan Institute warned in 2015 that “aggressive price controls that reduced prices by half would slash the number of products under development by 30 percent-60 percent.”
Aside from stifling innovation and the development of new medications, price controls could seriously limit patient access to crucial medications. Numerous studies have shown, countries that have implemented price controls on medication have not only disincentivized development, but they have prevented patient access to often life-saving drugs.
These concerns are not abstract as price controls have seriously limited consumers medical well-being and ability to live healthy lives. A recent report conducted by Britain’s Institute for Cancer Research warned that patients in the United Kingdom, who only have access to price-controlled medication, are “waiting longer for new cancer drugs.” British patients who use the government-run National Health Service only recently got access to the potentially lifesaving breast cancer medications Palbociclib and Ribociclib, a drug that had “been available to patients in the US for nearly two years.”
The example of patient access to Palbociclib and Ribociclib in the United Kingdom shows that when governments impose stringent price controls, patients are deprived of access to medications readily available in countries without price controls.
Understanding the damage price controls can have on the innovation of and access to medication should unequivocally demonstrate why they should not be implemented to resolve medication insecurity. Instead, policymakers should pursue other methods, such as improving transparency in the supply chain and the pricing system or allowing generic drugs to enter the market quicker to lower the costs of prescription medication.
Edward Longe is a research associate at the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.org or follow us on Twitter @ConsumerPal