Healthcare costs keep climbing. Medical spending will increase 6.8 percent this year and another 6.5 percent in 2016, according to PricewaterhouseCoopers consultants.
Some policymakers blame high prescription drug prices for these cost increases. State lawmakers in Massachusetts are pushing a bill that could cap prices on certain innovative but expensive medications. Some federal officials are advocating for price controls on Medicare Part D drugs.
Imposing price controls on prescription drugs is a terrible idea. Such caps won’t bring down healthcare spending, but they will discourage investment in drug research, thereby robbing patients of new life-changing new medicines. To protect patients, lawmakers should oppose arbitrary price controls that undermine medical research.
Dictating drug prices is a sure-fire way to stop pharmaceutical firms from creating new medicines. Drug development is a stunningly expensive process. The average FDA-approved medicine requires an investment of $2.6 billion and over a decade of research, according to a recent study from Tufts University.
The reality is most drugs don’t make it to approval — and investment in research and development must be recouped.
If price controls prevent pharmaceutical firms from earning back their development costs, then those firms won’t embark on risky drug research projects. According to the National Bureau of Economic Research, mandating drug price decreases of 40 or 50 percent would lead to a 30 to 60 percent decrease in early stage research and development projects.
Research funding cuts resulting from price controls would hurt all patients, but especially those suffering from rare diseases. Last year, 17 of the 41 new medicines approved by the FDA were treatments for rare diseases affecting less than 200,000 people. These medicines tend to be quite expensive because of the comparatively small patient populations force drug companies to charge a high cost per dose to recoup their development costs.
For instance, Vertex Pharmaceuticals recently released Orkambi, a new drug that could dramatically improve the lives of 8,000 Americans with a particular strain of cystic fibrosis, a fatal lung disease. Orkambi’s $259,000 annual price tag is undeniably costly. But if lawmakers were to impose price controls on Orkambi and other so-called “specialty” drugs, developers wouldn’t take the financial risk of attempting to create them. Patients would be left with no effective treatments.
In effect, price controls tell sick Americans with rare diseases: “You’re not worth helping.”
Price controls would prevent the development of new treatments targeted at more common diseases too. Consider the autoimmune disease lupus, which afflicts 1.5 million Americans with inflammation, pain and organ damage. In 2011, the FDA granted approval to Benlysta, the first drug in more than half a century designed specifically to treat lupus.
Had price controls been in effect during Benlysta’s 15-year development process, it’s unlikely that today’s patients would have access to such an innovative medicine. They’d be stuck using older, less effective treatments that cause side effects including nausea, dizziness and eye damage.
Although the high price tags on specialty drugs seem problematic, such drugs account for just 3 percent of total U.S. healthcare spending. Capping drug prices will drain the drug development pipeline dry, but will ultimately have little impact on overall medical spending.
In fact, oftentimes these specialty drugs lower healthcare spending by averting the need for more expensive treatments. For instance, Sovaldi, an $84,000 hepatitis C medication, cures 90 percent of patients. Patients treated with Sovaldi enjoy restored liver function and healthier lives.
They also won’t require more extreme hepatitis C treatments, such as a $500,000 liver transplant. By eliminating future healthcare expenses, Sovaldi saves more money than drug price caps ever would.
Lawmakers shouldn’t impose research-stifling price controls on pharmaceuticals. But they should work to make drugs more affordable. They can start by prohibiting insurers from charging unaffordable co-pays and co-insurance. That would protect patients without harming research.
Officials could also push for stronger trade agreements that stop other nations from capping their own drug prices and freeloading off U.S. drug development efforts at the expense of U.S. patients.
Politicians should also instruct regulators to strike the right balance between encouraging original drug development and enabling generic alternatives to come to market. Generic competition helps keep total drug spending in check. However, lawmakers must remember that without huge research efforts to develop the original brand name drug, there would be no generic alternative.
Imposing price controls on prescription drugs will deter medical research and development. That would devastate patients and prevent the discovery of drugs that improve lives and save the healthcare system billions.
Virginia Ladd is president and executive director of the American Autoimmune Related Diseases Association.