The Trump administration will soon roll out a new plan to slash drug prices.
In 2018, the administration proposed pegging the price of certain advanced drugs to the prices paid in other developed countries. Now, the administration wants to go much further by setting U.S. drug prices equal to the lowest price paid anywhere else in the developed world.
This plan might trim the costs of today’s medicines, but tomorrow’s medicines would never make it to the market as such a scheme would obliterate our research industry. That’s a lousy trade.
The administration’s proposed rule, which is expected in the coming weeks, would apply to advanced physician-administered medications covered by Medicare. Currently, these drugs cost 80% more, on average, in the United States than in other developed countries.
Originally, the administration planned to set reimbursements 26% higher than the average prices in more than a dozen mostly European nations. Now it wants to set reimbursements below the international average.
The administration says this plan will level the playing field between the United States and countries like Canada and the United Kingdom, which use price controls to keep drug spending artificially low. Government-run health systems in these countries refuse to approve or cover certain medicines unless manufacturers offer enormous discounts.
These strong-armed tactics are deeply unfair. They force Americans to shoulder a disproportionate share of the global research burden.
Instead of combating this freeloading, the White House’s plan would simply copy these socialist tactics. Price caps would slash research companies’ revenues and dissuade them from funding future drug development projects.
Developing a single drug is an arduous and risky process. Close to 90% of experimental medications fail in clinical trials. It can cost over $2 billion and take more than a decade of research to bring a new medicine to market.
But investors still fund these high-risk projects because of the possibility for equally high rewards. Biopharmaceutical companies invested almost $100 billion in U.S. research and development in 2017. Thanks to such investments, U.S. researchers invent more than half of the world’s new therapies.
The resulting medical breakthroughs save millions of lives. In the United States, cancer death rates have declined 26% since the early 1990s. Almost three-quarters of these survival gains are attributable to new treatments. HIV-related deaths have decreased by almost 90% since the introduction of antiretroviral therapy “cocktails” in 1996.
This level of innovation wouldn’t occur if America implemented European-style price controls. When governments set arbitrarily low prices for every new medicine, drug development becomes a high-risk, low-reward proposition. It becomes nearly impossible for scientists to raise funds to research new cures.
Implementing price controls in the United States would derail research into new treatments for Alzheimer’s, cancer and more. In the long run, forfeiting these treatments would cost the government far more than it’d save through price caps. If scientists developed a single Alzheimer’s treatment that merely delays the onset of the disease by five years, it’d save Medicare and Medicaid over $200 billion annually by 2050.
The administration’s plan would also harm patients immediately, not just decades into the future. Here’s how.
Currently, most drug companies launch new medicines in America before any other country. From 2011 to 2018, Americans had access to 96% of all new cancer medications developed anywhere in the world within three months of the initial launch. Meanwhile, patients in France had to wait 20 months, on average, for each new cancer medicine. And they still lacked access to 36% of those therapies. In Canada, patients waited 13 months, on average. And they lacked access to 44% of new cancer drugs.
Strict price controls would upend, and even reverse, this status quo. Companies would instead seek regulatory approval in other countries first while delaying U.S. drug launches. Many Americans battling serious illnesses would die due to these avoidable delays.
President Donald Trump wants America to get the “best deal” on drugs, but his administration’s approach misses the mark. A plan that cripples research and makes it harder for patients to access their medicines might save a few bucks now, but it’ll come at the cost of countless American lives in the future.
Drew Johnson is a senior fellow at the National Center for Public Policy Research.