Readers Write: Unintended consequences of regulated drug prices

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A 2018 report from the White’s House’s Council of Economic Advisors found that as of 2009, the price per dose of patented drugs was five times as high in the U.S. as in foreign markets.

Craig Garthwaite and Benedic Ippolito, recently wrote in STAT that “Midterm elections have ushered in a decidedly spit 116th Congress. Yet the desire to lower U.S. pharmaceutical spending, which now exceeds $450 billion a year and dwarfs that of any other developed nation, is likely to continue uniting some strange bedfellows.

Lawmakers from both sides of the aisle are doing a disservice to Americans by uniting behind populist drug-pricing proposals that ignore the harsh realities of drug development in favor of simplicity and sloganeering. 

Both Republicans and Democrats have called for tying U.S. drug prices to those of our international peers.

The Democrats proposed legislation that is aimed at drugs that are considered “excessively priced”–those whose U.S. Prices exceed the average amount paid by five other developed countries, ending patent protection for such drugs, opening them up to generic competition and likely price reductions. 

Another proposal announced earlier by HHS would base Medicare prices for” some drugs”  on the median amount paid in a set of developed countries. A long time ago, I learned “for money, you get honey.”

Under the current system, without going down to the lowest level around us, the average American gets early access to the newest medications.

Dr. Scott Atlas writing in the Wall St. Journal, writes that “everyone wants to reduce prescription drug prices, but how? ‘’First, do no harm..” ‘’First do no harm’’ is a sentence that is implied in  the oath that physicians take when they graduate medical school and swear to take care of their patients 

Between 1995 and 2005, 12 new cancer drugs were first introduced in the U.S. versus 13 in Canada, France, Germany, Japan, Switzerland, and the U.K. combined.

Of the 45 novel drugs, the Food and Drug Administration approved in 2015, 29 were available in the U.S. first. And a 2017 study found that all approved new cancer drugs were covered by Medicare in the U.S. compared with public insurance coverage of only 25 in the UK, 19 in France, 13 in Canada, 11 in Australia.

Atlas says “Pegging drug prices to those of foreign countries would ultimately lead to The same consequences Europeans endure–reduced access to critical drugs and worse outcomes, including more deaths from disease. 

PBMs act counter to patient interest while aggravating the lack of price transparency. They reward higher list prices on which patient premiums are often based.

Patients do not have the ability or “strength” to “shop” around in an attempt to find a lower price. One just has to look in their own households and ask their own parents or grandparent to go from store to store to find a lower price for a prescription they do not even have in their hands because the law requires electronic transmission from the physician to the pharmacy.

I watch people, friends of mine, discuss their prescriptions and their knowledge is limited. The small pharmacy who had time to talk to the patient is disappearing from the scene

Policies that aim to reduce drug prices – price regulation and weaker patent protection–are also associated with delayed availability, less innovation, and limited access.

Garthwaite and Ippolito, writing in STAT, in January  2019, tell of a situation that is not discussed very often. There is a tradeoff between drug prices and innovation that requires an accurate understanding. An of the nature of early-stage drug development and the mobility of investment capital.

“An increasing fraction of early-stage research is now undertaken by small biotech firms and startups. Their primary goal is to demonstrate the success of their products in order to be purchased by  large and more established firms”, ”This efficient evolution of the sector allows small biotechnology firms to confront the increasingly difficult world of drug development while allowing large companies to undertake large-stage development as well as regulatory and commercialization activities’’. This means that a considerable amount of the funds for risky, early-stage drug investments do not come from the internal profits of existing pharmaceutical firms, but instead, from venture capital firms.

FDA Commissioner Scott Gottlieb emphasized that “venture capital funds” are not restricted to pharmaceutical investment and these firms are “looking across a whole portfolio and comparing returns in one segment versus returns in another segment. It is very easy for them to shift more capital into one segment of their portfolio than another”.

Garthwaite and Ippolito suggest that “30 years is too long to wait for new medicines. There are ways to speed up drug development”: While this is technically true even for internal research and development funded by pharmaceutical firms’ profits, venture capital funds face far fewer frictions and can seek profits elsewhere” and capital will move out of the pharmaceutical sector.

The authors above ask you to consider ”the extent to which pharmaceutical investments respond to profit expectations” is not merely the domain of economic theory.

Bertram Drachtman 

Great Neck

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