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Under a new bill, a handful of new drugs might never get produced. That would be worth it.


A bill now making its way through the House could finally provide relief from the sky-high drug prices that have become a hallmark of the American health care industry. But to get there, Americans will need to accept a trade-off that other advanced nations have long since come around to: Slightly fewer new drugs will come to market, in exchange for better prices on the medications that already exist.

The Lower Drug Costs Now Act, spearheaded by the House speaker, Nancy Pelosi, could save $345 billion in federal spending over seven years, the Congressional Budget Office has found. It could also reduce out-of-pocket costs by $158 billion over a decade, according to a nonpartisan federal report. At least part of that savings would come from increasing people’s access to essential medications; lower prices would mean that fewer people have to skip or ration their prescription drugs, which would in turn lead to lower health care costs overall.

The proposed law would enable the Health and Human Services secretary to negotiate prices directly with drugmakers on as many as 250 prescription drugs that Medicare spends the most money on. It would cap the final price based on the average paid by several peer nations, including Australia, Britain and Canada. The pharmaceutical industry could lose as much as $1 trillion in profitsover a decade, and as a result would bring roughly eight to 15 fewer drugs to market during that time period (out of the 300 or so that would be expected), the Congressional Budget Office estimates. 

Still No. 1

Americans spend more on pharmaceuticals per capita than any other country in the Organization for Economic Co-operation and Development (O.E.C.D.).

To understand why that’s a fair and worthwhile trade-off, it’s important to understand how the current system works. Existing laws require the Medicare program to cover most drugs, no matter how much they cost, and prevent the federal government from using the full weight of its purchasing power to negotiate the best possible deal for its beneficiaries. (Medicare is the largestprescription drug purchaser in the world, by far.) Some of those protections exist for good reason; without legally binding mandates, the program might refuse to cover crucial but expensive medications. But they have also enabled drugmakers to hike prices — well beyond inflation, for years on end — without justification or penalty.

Other countries take a different tack. They decide what they are willing to pay for a given drug based on how strong that drug’s clinical benefit is, or whether it is cost-effective compared with similar medications already being sold. As a result, some new drugs aren’t covered in those countries — but those that are covered are generally effective and affordable. This approach acknowledges that innovation is useful only if people can afford the resulting products.

In America, nearly one in four people who take prescription drugs have trouble paying for them, and patients are roughly six times more likely to skip or ration essential medications, compared with patients in other countries. The consequences of such rationing are often dire.

Opponents of Ms. Pelosi’s bill have warned that any such changes to the American system will result in a “nuclear winter” for drug innovation. But these fatal predictions ignore some obvious facts. First, innovation is already being thwarted under the current system, which skews heavily toward some types of drug development and away from others. For example, there are huge incentives to bring certain new cancer drugs to market, even when those drugs have little impact on survival rates, but comparatively few incentives to develop antibiotics or treatments for diseases that predominantly affect low-income communities — both of which are urgently needed.

Second, drug companies that are concerned about their research budgets dwindling have options. They might consider trimming the generally outsize amount of money they spend on advertising. Or they could look to the generous tax breaks they have secured in recent years — as Axios and others have reported, much of the pharmaceutical industry’s 2017 windfall went to stock dividends and share buybacks, not research and development. Even the Health and Human Services secretary, Alex Azar, a former pharmaceutical executive, has called the drug industry’s projections of innovation loss “mathematically unbelievable.

The proposed changes aren’t risk free. Any plan that meaningfully curbs drug prices could substantially affect the pharmaceutical industry, in a way that reverberates. For example, less pharmaceutical profit could mean fewer pharmaceutical jobs and less industry tax revenue; 401(k) plans with substantial pharmaceutical industry investments also could suffer. But those risks ought to be weighed against the job and retirement-savings losses that individuals are grappling with as they struggle to obtain their prescriptions now.

Despite the bill’s near certain failure in the Republican-controlled Senate, most voters seem to want the changes it offers. According to a new poll from the Kaiser Family Foundation, at least 85 percent of Americans — including a majority of both Democrats and Republicans — want the government to negotiate directly with drugmakers and for the results of those negotiations to apply to private insurance as well as to Medicare. Seventy-two percent want drugmakers who refuse to participate in such negotiations to face financial penalties, as they would under the proposed bill. 

Support for the same ideas shrank when respondents were told that research and development would be imperiled as a result of these changes. That reluctance is not surprising, given the fear-mongering that the pharmaceutical industry and its supporters in Congress have engaged in over this issue. But Americans are increasingly desperate for affordable medicines. Given the system they have now, change may soon become the far less frightening option.

Originally published by the New York Times editorial board 11.02.2019 at 6am