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Medicare negotiation of drug prices would stifle the development of much-needed therapies. Curtailing defensive medicine and rolling back excessive regulation would be a better way to control healthcare costs.
The never-ending fight over whether or not Medicare will be able to negotiate down the price of drugs with the pharmaceutical companies who create them appears to be suffering another setback. Moderate Democrats are balking and it’s increasingly unlikely that party leadership will get the votes needed to pass this part of the proposed $3.5 trillion reconciliation package. The Democratic caucus would do better by targeting more fruitful avenues of revenue than targeting the leading innovators in medical care.
According to Congressional financiers, allowing Medicare to negotiate drug pricing would free up anywhere from between $428 and $700 billion to be spent elsewhere. These “savings” would be applied towards the creation of new entitlements within Medicare.
A noble trade-off? Not here. On balance, a defeat in this instance is clearly the preferable outcome for patients suffering from a host of medical conditions. Requiring that the pharmaceutical industry take a $700 billion haircut would result in very real slowdowns to the creation of new medicines. A recent CBO study estimates that more than 50 new drugs annually would simply not appear for patients if the draft language became law.
Unmet medical needs, where pharmaceuticals can play a life-saving role, affect millions of Americans. By 2030 it is estimated that more than 1 million people could die each year from cardiovascular disease, a disease that today kills around 660,000, more people than cancer annually. Therapies are still needed for degenerative brain diseases such as Alzheimer’s, which takes the lives of an estimated 500,000 Americans every year, as well as many conditions that disproportionately impact women, like fibroids, osteoporosis, and female sexual dysfunction.
Politicians have really put the pharmaceutical industry in a bind. On one hand, they stir up resentment among their constituents and lambast companies for “overcharging” Americans. On the other hand, they demand that drug innovators and developers submit to an extremely costly drug approval process.
You can’t have it both ways. If you want to materially contribute to lowering the costs of medicines, you’ll have to let up on the restrictions that make it so expensive to get new drugs to doctors and their patients. The cost of bringing a new therapy to market has been doubling every ten years and is currently estimated at $2.5 billion. Fixing this would be an important step towards reducing drug prices if that’s your goal.
In any event, drug pricing is only a small part of the bigger problem. Yes, Americans spend more per capita on healthcare than people in other countries and the prices we pay are higher too. However, pharmaceuticals only account for 14 cents of every healthcare dollar spent and are not the primary driver of cost inflation. The vast majority (~80%) of drugs that Americans take are generics and do not pose a price difficulty for consumers.
Indeed, most of the high-cost prescription drugs are specialty biologics delivered by injection that require careful manufacturing, shipment and storage protocols. So while there are savings to be made on the drug development side, squeezing savings from drug development seems, at the exclusion of all else, counterproductive and materially sets back better health outcomes for patients.
If we really want to get savings out of the healthcare sector, we should target the real drivers. Medical malpractice reform remains a good place to ferret out savings. Defensive medicine practices, which leads to the ordering of unnecessary diagnostic tests, occur in an effort to protect physicians from liability. More often than not, defensive medicine does provide significant benefits to patients and, instead, increases costs through increased rates of malpractice insurance (which are passed down) as well as the expense of inconclusive test results.
Other promising avenues for reducing healthcare costs include rolling back excessive government regulation, encouraging transparency, and reducing the dominance of third-party payers. Reforms in any of these areas could reduce costs to consumers and government, fostering greater accountability in healthcare outcomes, all without compromising safety or efficacy.
Michael Abrams, MA, is the co-founder and managing partner of Numerof & Associates.