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The Price of Drug Controls: Patient Care and Innovation

By Jim Edwards, Conservative Property Rights


By Jim Edwards, Executive Director, Conservative Property Rights


The bad idea of “international reference pricing” is raising its ugly head again.


Speaker Nancy Pelosi has reintroduced H.R. 3, which contains several government price controls and other punitive measures.  Among them is international reference pricing.


So is government price-fixing of 250 medicines plus new drugs.  A 95 percent tax on gross sales, which would likely drive some biopharmaceutical innovators out of the U.S. market.  Also, the bill includes a retroactive “inflation penalty” for Medicare Parts D and B.


Last Congress, such legislation was all politics and no policy.  In one-party Washington, it’s both politics and policy. As Congress and the administration recklessly revive these counterproductive concepts, voters should know the stakes with such government price controls.


First, reference pricing imports the government-dictated prices of foreign countries.  Their government-controlled health systems fix the price and force it on drug companies.  That’s the “negotiation.” 


If a private company did what socialized health systems do, it would face antitrust scrutiny for abusive monopsony power — the equivalent of a monopoly on the buyer side. 


Sometimes government-controlled health bureaucracies say “take it or leave it.”  Sometimes they resemble the mafia.  If the government-set price isn’t satisfactory, the drug innovator is stuck.  The foreign government threatens to expropriate the intellectual property and have knockoffs produced.


Second, reference pricing imports foreign governments’ budget policies.  Everywhere the government controls health spending and medical resource allocation, its focus becomes dollars and cents — or euros or whatever.


Rather than focusing on how effective a novel drug is in fighting or curing disease, foreign health systems including those in Canada, Europe and elsewhere focus on their budgets.  


Decision making about whether to offer a new medication comes down to financial considerations.  Fiscal fixation blocks the most effective drugs from becoming available in government price-fixed nations.  Even if the new drug would save lives, improve health and save future health spending, bureaucrats keep cutting-edge medicines from their fellow citizens.


Most price-controlled heath systems manipulate the route to approving a new medical technology.  Because budget costs are the main concern, the process deck is stacked against innovation.


Foreign countries use such tricks as health technology assessments, quality-adjusted life years calculations (I.E., too old or too sick?  Too bad.) and basing drug price on the average of several reference countries which themselves have dictated artificially low rates.


For example, when assessing a new medicine to determine whether to make it accessible and, if so, its price, Germany employs restrictive clinical results, selective data and cherry-picked endpoints in its “health technology assessment.”


“Comparative effectiveness” sounds so objective and scientific.  It isn’t.  It’s all about costs to the government’s health system — not safety, clinical effectiveness or patient benefits.


Third, reference pricing imports the dangerous, cruel, anti-innovation policies and effects of countries where the government health system calls the shots based on budgetary, not human, concerns.


The danger of bureaucratic gamesmanship puts millions of suffering patients’ lives and health at risk, because breakthrough drugs don’t work for the government budget.  


For instance, 100 percent of Germany’s “technology assessments” of new epilepsy drugs rule negatively on clinical benefit.  For new diabetes medicines, 91 percent get thumbs down.  For mental health drugs, 90 percent are excluded.


There’s the cruelty of less access to new, better drugs.  Reference pricing would reduce our access to new medicines.  Reference pricing would lead to rationed access to limited supply.  It would stretch out the time before Americans could get breakthrough drugs.


For example, today, Americans have access to 96 percent of new cancer drugs.  Only 74 percent of new oncology medicines are available on average for Australia, Canada, France, Germany, Japan and the United Kingdom.  Australia makes only 49 percent of new cancer drugs available in its health system.


Today, U.S. patients have access to 100 percent of the 98 cancer medicines introduced in the past decade.  Australian cancer sufferers have access to just 35 percent of these remarkable drugs; New Zealanders to only 26 percent.  Note that the U.S. cancer death rate is falling because of innovative cancer drugs.


U.S. patients have access to new medicines less than a month after their regulatory approval.  In Canada, there’s a 24-month delay.  That doesn’t count delays and care rationing individual Canadian patients routinely experience. 


Price controls, including reference pricing, threaten biopharma innovation — and U.S. global leadership in biopharma innovation.  Reference pricing will cut billions from investment in R&D.  That leads to fewer treatments and cures.


Jim Edwards, Ph.D., is executive director of Conservatives for Property Rights (@4PropertyRights) and patent policy advisor to Eagle Forum Education and Legal Defense Fund.The views expressed are his own.