Drug-Price Controls Can Be Injurious to Your Health


The Trump administration’s plan to lower drug costs could have unfortunate side effects.

No nation has come close to the United States in finding new cures for painful and deadly diseases. And no industry in the history of mankind has done more to preserve life and reduce pain and suffering than the U.S. pharmaceutical companies. So why is this industry suddenly a villain?

The U.S. accounts for over half of all new wonder drugs developed in recent decades, according to the Milken Institute. The age-adjusted death rate from cancer and heart disease has fallen by almost half since the 1960s — a miracle of human discovery and innovation. This isn’t just because we have the most brilliant and innovative medical researchers or because we have the world’s best labs — which we do — it’s also because we provide a financial incentive for drug development.

Yes, the profit motive works in drug development just as it does in computer software and lemonade stands. The cost of developing, testing and bringing to market a new drug can reach nearly $3 billion. Most new drugs fail, and hundreds of millions can be spent chasing a promising drug that fails in clinical trials. A few “miracle” drugs have to cover the cost of hundreds of losers. New cures for cancer, MS, Parkinson’s, arthritis, epilepsy, and so many other terrible diseases, each a search for the needle in the haystack, will require formidable R&D spending by pharmaceutical investors.

President Trump is right to try to lower drug prices here at home. It is a travesty that other nations get access to U.S. innovation at cut-rate prices — much lower than what Americans pay. For example, the Health and Human Services Department reports that a senior who receives an eye medicine that currently costs Medicare $1,800 a month is charged only $300 a month in many other nations. A popular chemotherapy drug costs Medicare $4,700 for each treatment here in the U.S. but only $1,100 in other nations. HHS estimates that Americans pay “180 percent of what other countries pay for physician-administered drugs.” Something is seriously wrong here.

This is a major reason that overall medical costs are higher in America than in other nations with socialized health care. The rest of the freeloading world is like the 25-year-old kid living at his parents’ house rent-free and helping himself to everything in the fridge.

Health and Human Services Secretary Alex Azar, a former drug-industry executive, has announced a new proposal for lowering drug prices in America, and there are some very good ideas here to restore fairness in pricing. He assures me that the program is designed to limit the price controls in foreign countries and bring American drug prices down so they are in line with other nations. He says it will not deter the $70 billion a year in U.S. drug-company R&D expenditures. Medicare already is a price-control system for drugs; Azar’s proposal is designed to save Medicare and consumers about $5 to $7 billion over the next five years.

Meanwhile, Senator Bernie Sanders will introduce new legislation in January to have the government determine whether a “drug price is excessive.” If the answer is yes, the feds would strip the drug company of its patent to exclusively sell the drug. The Washington Post recently noted with irony that this is maybe the only issue that “Trump and Bernie Sanders agree on.” Bernie would go even further than Trump and negate patent protections for high-priced drugs purchased by Medicare or even private health plans. Just how Uncle Sam will define an “excessive” drug price is not stated. Perhaps it will be like the old and subjective definition of obscenity; we’ll know it when we see it.

But Trump should beware. No one benefits if the U.S. — even inadvertently — imports unreasonable price controls from other nations that would erase the profits from creating the drugs in the first place. Many studies have shown that when nations artificially lower prices for drugs and other American-made health innovations, the very R&D spending that leads to miracle treatments and cures falls.

So how can we make sure American consumers and Medicare aren’t getting shafted on drug prices? One promising strategy is to negotiate trade deals that protect American patents and innovations so that every nation pays its fair share for new treatments. Also, we should speed up the FDA approval process for new drugs to lower costs to bring promising drugs to the market.

Trump’s patent-protection approach has worked with Canada and Mexico. President Trump negotiated a deal that protects intellectual property and data protections for American innovators. These standards should be the foundation for even stronger trade deals with Europe and Asia going forward. If other nations pay their fair share, it will lower prices for Americans as new and incumbent drugs compete. One dramatic example of this process is the tumbling cost of hepatitis C drugs, which fell between 60 percent and 80 percent within just a few years due to introduction of “follow-on” rivals.

Secretary Azar’s goal is to lower drug prices for American patients by establishing prices paid by Medicare that are in line with the price controls of other nations. But if price controls are the problem, effectively importing them to these shores can’t also be the solution. Shrinking reasonable profits of drug companies through de facto price controls inevitably leads to less innovation, rationing of care, and reduced patient access to new cures. Remember, if Bernie Sanders or HHS set prices too low, as in at least half the nations in the world, life-saving drugs might not be brought to the market in the first place — or they will be delayed in reaching sick or dying patients. That’s the surest way to lose the race for the cure and to add to the costs of the medical system. Even when they are expensive, drugs are almost always the least expensive way to combat serious disease.

What is even more expensive to human health is not having the drugs available at all.

Stephen Moore

Stephen Moore is an economic consultant with Freedom Works and served as a senior economic adviser to the Trump campaign. His new book with Arthur Laffer is Trumponomics: Inside the America First Strategy to Revive the Economy.