President Donald Trump recently promised a cheering Miami crowd that America "will never be a socialist country." Let's hope!
But some of his top officials at the Department of Health and Human Services apparently didn't get the memo. They’re forging ahead with a plan to impose price controls in Medicare.
HHS's plan affects Medicare Part B, which covers medications that doctors typically administer in their offices or hospitals. Part B currently pays more for those drugs than other developed countries such as the United Kingdom, France, and Canada. Those nations use price controls to cap the cost of prescription drugs. If a pharmaceutical company refuses to accept the government-imposed prices, those countries’ socialized health systems simply refuse to cover the company’s product.
Such a step may save the government money, but does it save lives?
The HHS plan would index Part B drug reimbursements to the average sales prices paid by over a dozen developed countries. By tying U.S. reimbursements to the price-controlled nations, HHS would effectively be importing socialist price controls here.
The result would be that U.S. patients would lose access to many targeted drugs immediately, and in the future to the drugs that were never invented.
Right now, drug companies spare almost no expense to get their drugs through the long and arduous FDA approval process. The average newly approved drug costs about $1.7 billion to develop, and that doesn't include the "opportunity costs" of investing the money elsewhere.
And it can take 10 to 12 years to make it through the process; only 12 percent of medicines that enter clinical trials receive FDA approval and make it to market.
However, the drug company's patent begins when a potential therapy is identified, not when it is FDA approved. Since patents last 20 years, the company may only have eight to 10 years left on the patent when the new drug finally hits the market.
Drug companies are able to finance these projects because a single breakthrough medicine can deliver a substantial return that enables them to cover all their development costs and invest in new research, a point that is often overlooked. The drugs currently on the market are what’s financing the new research.
If HHS’s plan is implemented, drug companies' returns will be even more limited. What might have been a profitable drug at a market price may not be at a government-controlled price. That means some potentially disease-curing, life-saving drugs will not be invented.
That's the real risk.
In price-controlled nations, drug manufacturers often don't launch drugs as quickly — if they launch them at all. American patients have access to new drugs on average 19 months earlier than patients in the countries that HHS has selected for its reimbursement index.
To be clear, Part B-reimbursed drugs, the target of HHS's plan, typically treat cancer, diabetes, arthritis and other deadly and debilitating diseases. Even just a couple months could mean the difference between life and death for patients battling cancer and other serious diseases.
Biopharmaceutical companies risk a lot — in time and money — to develop a new drug for very complicated diseases. When Pfizer decided last year to abandon its years-long effort to find a cure for Alzheimer's, the Financial Times wrote, "It has been 15 years since a new drug for Alzheimer's was launched, reflecting one of the longest and most expensive losing streaks for Big Pharma. But the sector continues to plow billions of dollars into finding a medicine that can cure that disease…"
So the companies "continue to plow billions of dollars" into Alzheimer's research. That money must come from somewhere.
Price controls would upend this system. The government would prevent companies from earning enough on their few winners to compensate for their losses. Drug makers would have no reason to fund future innovation.
This scenario has already played out in Europe. For decades, Europe led the world in pharmaceutical innovation. In 1986, Europe outspent the United States on R&D by nearly 25 percent. Over the next few decades, as European countries continued to implement price controls, investment funding for medical research migrated to the more competitive American markets. Now, more than half of all new drugs invented worldwide are created here in the United States.
Price controls would deter lifesaving medical innovation and harm American patients. If the president wants to end socialism and put America first, he should stop his health chief from pursuing this disastrous plan.