U.S. Should Not Import Foreign Price Controls on Drugs | Citizens Against Government Waste

U.S. Should Not Import Foreign Price Controls on Drugs

The WasteWatcher

On May 20, 2019, Health and Human Services (HHS) Secretary Alex Azar, spoke before the 72nd World Health Assembly, the decision-making body of the World Health Organization (WHO) under the United Nations (UN), in Geneva, Switzerland. This assembly is held annually and attended by delegations from the 150 WHO member states, including the United States.  The World Health Assembly sets policy and supervises finances for the WHO, whose mission is to improve health across the globe and handle healthcare emergencies by identifying, managing, and mitigating health risks.

The United States is the largest contributor to WHO, at 22 percent of the budget.  In 2017, that amount was $530 million. 

Most WHO member states subscribe to single-payer, or government-run healthcare systems.  Secretary Azar urged the member states to “welcome a greater role for the private sector on all health challenges, whether infectious or non-communicable diseases, access to medicines, or any other.”

When it comes to biopharmaceutical research and development, the U.S is number one at 58 percent.  The closest competitor, Japan, is at 13 percent.  In Europe, the country that undertakes the most biopharmaceutical research is the United Kingdom, at 7 percent.  These figures prove that government price controls are one of the most destructive forces to innovation.

CAGW hoped that the secretary would have discussed more about the importance of the private sector in improving healthcare, but Secretary Azar chose to highlight the fact the Trump administration has “proposed reference pricing for medications for the first time, injecting competition into a large government-run program that previously accepted any price manufacturers suggested.  It is my duty to ensure that American patients have access to cutting-edge cures, and we will protect innovation incentives just as vigorously as ever.  But under President Trump, the United States will never be a bystander to abusive drug pricing practices.”

Reference pricing is paying for drugs based on prices paid in other countries.  Therefore, the administration is not injecting competition into a government-run program; it is injecting price controls.  The secretary is referring to the Centers for Medicare and Medicaid October 2018 advance notice of proposed rulemaking that would set up a payment model that adopts an international pricing index (IPI) scheme for Medicare Part B drugs and biologics.  These are primarily drugs administered by a physician under Medicare.

In other words, instead of pointing out, as did the President’s Council of Economic Advisers’ February 2018 report, that the United States both conducts and finances much of the biopharmaceutical innovation that the world depends on, allowing foreign governments to enjoy bargain prices for such innovations and that they are “free-riding," or taking "unfair advantage" of the United States’ progress in this area, the secretary is promoting foreign price controls.

If the October 2018 Medicare Part B proposal is adopted, it will cause serious distortions to the U.S. pharmaceutical marketplace, as price controls always do, by shifting costs and harming innovation.  Medicare Part B, the VA drug benefit, the 340B drug discount program, and even the donut hole in Medicare Part D utilize price controls.  Apparently, HHS likes the UN model when it comes to pharmaceutical development.

Adopting other countries’ destructive drug pricing will cause severe damage to innovation and developing the miracle biopharmaceuticals for the future.  Reforming Medicare Part B by introducing true market reforms rather than implementing the IPI proposal is the better long-term answer.