Cased Closed – The International Pricing Index is Foolish Policy | Citizens Against Government Waste

Cased Closed – The International Pricing Index is Foolish Policy

The WasteWatcher

On Thursday, the President’s Council of Economic Advisers (CEA) effectively closed the door to adopting a bad drug pricing policy that Citizens Against Government Waste (CAGW) has opposed since it was first announced, the International Pricing Index, or IPI.  The report is entitled, “Funding the Global Benefits to Biopharmaceutical Innovation.”  It explains why utilizing price controls are not the answer to lowering drug costs and how foreign countries have been “free-riding on U.S. investments and innovation in drug development” over the past 15 years.

In October 2018, the Trump administration proposed a testing model that would change reimbursement policy for certain drugs purchased within Medicare.  The model was going to be tried on drugs covered under Medicare Part B, which are prescription drugs that are purchased and administered by a physician, such as vaccinations.  Instead of utilizing the current process of reimbursing the physician at the average sales price plus 6 percent, the proposed model was to base the reimbursement on what other countries pay for their drugs.

The IPI was nothing more than adopting the price controls found in 14 countries that utilize socialized medicine.  When these countries implemented price controls, they destroyed their biopharmaceutical research and development.  An issue paper, “Why Pelosi’s Drug Price Control Scheme Would Be a Poison Pill to Innovation and Access,” written by Doug Badger at the Heritage Foundation, pointed out that in 1986, European firms led the U.S. in spending on pharmaceutical research and development by 24%.  After the imposition of price control regimes, they fell behind.  By 2015, they lagged the U.S. by 40%.”

Unfortunately, the IPI scheme has been adopted by others and is found in bad legislation, such as H.R. 3, the “Elijah E. Cummings Lower Drug Costs Now Act,” which is in reality Speaker Nancy Pelosi’s drug pricing bill.

CAGW was mystified why an administration that is correctly resistant to socialized healthcare and has argued for taking decision-making out of Washington would even consider such a course of action.  Adopting an IPI gives legitimacy to the policies used by countries to ration care and keep health costs artificially low.  The CEA report affirms our opposition to this bad idea.

The CEA report notes that “U.S. patients and taxpayers have largely financed global revenue for the biopharmaceutical industry.  Unlike developed countries with single payer systems, the U.S. drug market is less financed by the public sector and more open to market forces.  In a free market, prices of products reflect their value as opposed to a centrally controlled government system, in which prices reflect political tradeoffs.”  The report further stated, “not only does the U.S. finance most of the world’s medical R&D, it also provides the returns required to make those investments feasible.”

What is the major conclusion?  “We find that that if free-riding abroad was reduced and foreign relative drug prices reflected relative GDP per capita, total innovator revenues from those countries would have been $194 billion higher in 2017, raising global revenues by 42 percent. Reducing foreign price controls would increase profits and innovation, thereby leading to greater competition and lower prices for U.S. patients.”

Just as President Trump has called on our European allies to pay their fair share for NATO and they are responding, it is time for them to pay their share of U.S.-funded biopharmaceutical research.  Calling for better trade deals that would protect biopharmaceutical intellectual property should be a priority of the Trump administration and Congress, not more price controls.

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