More of the Same | Citizens Against Government Waste

More of the Same

The WasteWatcher

Presidential candidate and former-Secretary of State Hillary Clinton proposed several worn-out initiatives this Tuesday that would supposedly lower drug prices but, if implemented, would seriously damage research and development in the United States while harming patients well into the future.  Many promising drugs would either never be discovered or be severely delayed in reaching the market.  The announcement was necessary to try to outwit her chief rival in the race, Senator Bernie Sanders (I-Vt.), and to deflect attention away from her growing email controversy.  These proposals have been offered in President Obama’s budgets and pushed by big government politicians on a routine basis.  I’ll highlight some of her proposals and reasons why they would not work.

Clinton Proposal:  Let the Secretary of Health and Human Services (HHS), which oversees Medicare, “negotiate” drug prices, implement Medicaid style rebates in the Medicare Part D program, and cap out-of-pocket prescription drug costs to $250 per month.

The government does not negotiate drug prices. Rather, it uses price controls to lower prices and that is precisely what these proposals are.  Price controls of all types are extremely disruptive, whether utilized with pharmaceuticals, or any other product or service, as I laid out extensively in my September 2015 Waste Watcher.  Price a product or service too low and there will be a shortage; set it too high, and there will be a surplus.  Governments throughout history have had notoriously bad results when they try to outmaneuver a free market.

The “non-interference” clause contained in the law that created Part D keeps government bureaucrats and politicians out of the drug pricing business, while allowing real negotiation to occur vigorously between pharmaceutical companies, pharmaceutical benefit managers, and pharmacists.  This policy has enabled Medicare Part D to be one of the most successful government-created programs, so much so that its design has often been cited as a model for reforming all of Medicare, which is facing bankruptcy in 2030.  Moreover, it has cost less than originally predicted by the Congressional Budget Office (CBO).  In 2004, the CBO projected the cost of Medicare Part D would be $123 billion in 2012; its cost was less than half of that at $55 billion.

Clinton Proposal:  Allow Americans to import drugs from other countries.

The reason why drugs are less expensive in Europe and Canada is because they utilize price controls and their research and development have suffered for it.  According to a 2014 study published in the New England Journal of Medicine, U.S. spending on biopharmaceutical research in 2012 was 45 percent of world’s total, while all of Europe was at 29 percent, and all of Asia was at 24 percent.

As for importing drugs, the CBO has stated doing so would not reduce drug spending by very much.  For example, because foreign governments already intervene in regulating drug prices they would also be highly likely to limit exports to the U.S. in order to avoid shortages in their countries.  More importantly, as the FDA points out, importing drugs can be dangerous for several reasons.  For example, other countries have different regulations and standards compared to the U.S. and drug dosages may be different too.  And just because an Internet website claims it is a Canadian pharmacy does not make it so.  Even though our respective countries do their best to verify that pharmacy websites are valid, counterfeiters often forge U.S. and Canadian verification seals to trick unsuspecting patients into buying their fake or adulterated drugs.

Clinton Proposal:  Ban Pay-for-Delay

Pay-for-Delay is the derogatory term for patent settlement agreements between brand-name and generic drug companies.  This issue has been hotly debated in recent years.  Patent litigation within the pharmaceutical arena is complicated to understand, but the Regulatory Affairs Professional Society lays it out in a July 2013 article.  Essentially a generic company challenges a brand-name company’s patent in order to open the doors to generic competition.  The brand-name company can either fight the challenge in a lawsuit or settle with the generic firm.  More often than not, the companies agree to settle because lawsuits can be long and expensive and often the patent in question is nearing its expiration.  The settlement often includes some payment from the brand-name firm to the generic firm and a negotiated date to market the generic drug.

Generic manufacturers, which have a lot to gain by getting their drugs into the marketplace as soon as possible, oppose banning or restricting patent settlements.  They are smaller and have fewer financial resources compared to large brand-name companies to take on a major lawsuit.  The Generic Pharmaceutical Association, which represents generic firms, states, “[b]anning settlements would force companies to continue drawn-out litigation until a court handed down its decision and then allow generic market entry only if the generic company wins the case.  Over the past 12 years, generics have won less than 50 percent of the patent cases.  The bottom line is clear and convincing: settlements guarantee savings for consumers, the government and healthcare providers; limiting settlements risks these savings by betting that the generic company will always win the patent suit.”

In other words, if patent settlements are stopped, expect generics to take longer to get to the market.

Clinton Proposal: Stop direct-to-consumer drug company advertising subsidies and reinvest funds in research.

The Clinton proposal for restricting drug advertising implies that no government entities regulate drug advertisements, but that is not the case.  Congress has written requirements on what drug companies must do and has given the FDA and the FTC the authority to oversee prescription and over-the-counter drug ads, respectively. Furthermore, the results of an FDA survey of physicians found that, while there may be some negatives resulting from ads (e.g. patients not understanding some risks involved with drugs), most thought the ads enabled patients to ask more thoughtful questions, be more aware of possible treatments, and be more involved in their own healthcare.  The survey also found that when the patient asked about a specific drug, 88 percent of the time the patient had the condition the drug treated.

As mentioned earlier, the U.S. already leads the world in biopharmaceutical research and development, but Clinton’s plan will have the government decide how much companies should spend on pharmaceutical research.  Opening that door will be a dangerous proposition because it will lead to politicians and government bureaucrats deciding where drug companies should spend their research dollars.

Clinton Proposal: Ensure American consumers are getting value for their drugs

Who will decide what value means?  Clinton's plan mentions some amorphous private-sector analysis, but in truth the government will decide who does the analysis.  More than likely, the proposal would create something similar to the Patient-Centered Outcomes Research Institute (PCORI), which was established in the Affordable Care Act and undertakes comparative effectiveness research.  Its members are selected by government officials.  However, Clinton adds an additional caveat: that the board will take the price of drugs into consideration.  It is very likely the board would not recommend some drugs be utilized because they might be considered “too expensive” compared to other available treatments.  This sound very similar to what the British Health Service tries to accomplish via the National Institute for Health and Care Excellence (NICE).  The NICE is notorious for denying payment for drugs or other therapies they deem too costly, not effective enough, or unnecessary.  Their decisions often mean British citizens do not get access to the newest and most innovative research.

The quickest and best place to decide value of a product is in the marketplace.  Doctors and patients will more quickly determine what is valuable than any politician or government-created clearinghouse.

Much of the recent uproar over drug pricing began with the release of Gilead Sciences’ hepatitis C drug Sovaldi.  But a September 18 Investor’s Business Daily article points out that other manufacturers, such as AbbVie, Merck, Bristol-Myers Squibb, and Johnson and Johnson are either already selling or intensely researching hepatitis C drugs.  As a result, costs are going down because patient numbers are dropping – they are being cured – and because competition is driving down prices.  In other words, the marketplace works.

While the U.S. is responsible for approximately 45 percent of all the world’s biomedical research, it used to be 51 percent in 2007.  Our nation is slowly losing its edge in biomedical research because of issues such as price controls already implemented in Medicaid and the Veterans Administration drug plans, a sluggish and costly government approval process, and high taxes.  Adopting more policies such as Hillary Clinton suggests would further erode our advantage and destroy thousands of biopharmaceutical jobs in the process, not to mention an untold number of promising new therapies.

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