Drug prices may drop under Medicare reform plans – But it could come at great cost to patients' health

Department of Health and Human Services Secretary Alex Azar recently proposed sweeping reforms to Medicare. He hopes the changes will reduce the price of many cancer drugs and other advanced therapies by 30 percent.

The proposal may accomplish that goal – but only at great costs to patients' health. The overhaul would stifle innovation and smother the cures of tomorrow.

The proposal targets Medicare Part B drugs, which include advanced cancer treatments, immunotherapies, injectable medications to treat rheumatoid arthritis, and other medicines administered under physician supervision.

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According to HHS, these drugs cost about 80 percent more, on average, in the United States than in most European nations.

This comparison is somewhat misleading. Medicare drug spending figures include the fees collected by doctors, hospitals and wholesalers. EU drug spending figures, by contrast, don't necessarily include those fees, which can account for more than 30 percent of the retail cost of medicine. So the price disparity isn't quite as large as HHS suggests.

However, there's no question that drugs are more expensive in the United States, since most other wealthy nations impose price controls on medications. For example, regulators in the United Kingdom conduct a cost-effectiveness analysis on each drug and refuse to cover medicines priced above an arbitrary limit. Canadian regulators outright dictate drug prices. 

Azar wants to import this price control model by indexing Medicare drug payments to the average sales prices of drugs in 14 other developed nations. The reform would save taxpayers less than 0.01 percent of forecast Medicare spending over the next five years according to HHS estimates.

The fallout from HHS's proposed changes would far outweigh these relatively minuscule savings.

Price controls would impede investment into new medicines that cure diseases like Parkinson’s and Alzheimer’s. Right now, drug companies have a huge financial incentive to launch their medicines in America as soon as possible. Last year, 92 percent of all new medicines approved around the world were made available first in the United States.

There are 7,000 drugs in development worldwide.  These treatments could cure Alzheimer's, cancer, rheumatoid arthritis, or any number of rare diseases. Such medicines would drastically transform patients' lives for the better. But these drugs may never exit the lab if the United States imposes price controls on pharmaceuticals.

By contrast, patients in price-controlled nations typically wait months or even years to access the same treatments. In fact, from 2011 to 2018, patients in Germany and the UK waited an average of nine months longer than U.S. patients did for new oncology drugs.

A few months could make the difference between life and death for patients with serious illnesses. For example, only 28 percent of patients battling pancreatic cancer are still alive six months after initial diagnosis.

By delaying drug launches, price controls would condemn many American patients to early, avoidable deaths.

Price controls would also stifle innovation. The United States leads the world in drug development. Large biopharmaceutical companies have collectively invested more than $500 billion in research and discovery since the turn of the century. Small biotech firms have invested tens of billions more.

Thanks in part to the medical advances that result from these investments, Americans are living a full decade longer than they were in 1950.

Consider the recent breakthroughs in treating hepatitis C, a potentially fatal liver disease. Roughly a decade ago, an older generation of therapies cured only four in 10 patients after 48 weeks of treatment. Today, the latest drugs cure over 90 percent of patients in as little as eight weeks.

Medical innovation allows patients to live healthier today and prevents death and disease for generations to come.

But research investments are risky. It takes $2.6 billion and up to 15 years to bring a new drug to market. The vast majority of drug compounds never make it out of the lab. Of the compounds that reach clinical trials, fewer than one in eight ever receives regulatory approval. Drug companies' profits from their handful of successful drugs must cover the losses on their many failures.

Capping the price of drugs would make it much harder for companies to recoup their investments. Firms would lose the incentive to develop new cures, and patients would suffer as a result.

Taxpayers would suffer too since price controls would prevent the creation of new treatments that reduce overall health spending. If researchers discovered a treatment that slows the onset of Alzheimer's disease by just five years, it would save government programs like Medicare and Medicaid roughly $200 billion annually by 2050.

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There are 7,000 drugs in development worldwide. These treatments could cure Alzheimer's, cancer, rheumatoid arthritis, or any number of rare diseases. Such medicines would drastically transform patients' lives for the better.

But these drugs may never exit the lab if the United States imposes price controls on pharmaceuticals. Azar should scrap his Medicare proposal to protect patients and taxpayers.