For years, politicians have railed about the high cost of prescription drugs. But now, they appear poised to take action. Democrats and many Republicans want to impose price controls on medicines.
One proposal would allow patients to import price-controlled medicines from Canada. Another would allow federal bureaucrats to effectively dictate the price of medicines sold through Medicare’s prescription drug program. Yet another plan would index Medicare reimbursements for advanced drugs to the artificially capped prices paid in other developed nations.
All of these reforms would ultimately do far more harm than good.
Price controls would yield some short-term savings. But they’d also choke off funding for drug development.
Drug development is one of the most expensive, risky enterprises in the world. Of the few compounds that make clinical trials, just one in 10 is approved for sale. It takes about 15 years and $2.6 billion to make one new medicine.
There’s no denying that some cutting-edge medicines are expensive. New cancer drugs, for instance, often cost $10,000 or more per month.
Fortunately, drugs don’t stay expensive forever. After a drug’s patent expires, generics flood the market. This competition allows patients to access lifesaving therapies for pennies on the dollar.
For example, one common therapy for bipolar disorder, cost $393 in 2010. Just five years later, after generics came to the market, the drug cost a mere $8. A popular blood thinner, meanwhile, had a list price of $166 in 2011. Today, patients can get that treatment for $5.
Drug companies risk billions to create new products. When they succeed, they set prices high enough to recoup development costs and earn profits. Then generic competition drives down prices. The vast majority of prescriptions filled at U.S. pharmacies — fully nine out of 10 — are generic.
And because innovators are rewarded for new discoveries, they continue to invest in medical innovation. Thanks to new drugs, cancer death rates have fallen 27 percent since the 1990s.
The future of drug development is bright. There are more than 8,000 drugs under development worldwide for myriad deadly diseases, like cancer and stroke.
But patients will never see these cures if politicians implement strict price controls.
That doesn’t mean politicians should do nothing. There are good ways to lower Americans’ drug bills.
Encouraging more competition by speeding up drug approvals, especially for generic drugs, would drive down prices.
Reforming the drug rebate system is another good idea. Right now, drug makers typically offer discounts of 30 percent or more to insurance plans. But insurers rarely use those discounts to help patients save money. Requiring insurers to pass these savings to patients at the pharmacy would make prescriptions far more affordable.
The next generation of miracle cures is on its way, but only if politicians don’t squash pharmaceutical innovation with short-sighted price controls.
Sandip Shah is the founder and president of Market Access Solutions, a global market access consultancy, where he develops strategies to optimize patient access to life-changing therapies.