Clinton drug plan would backfire on patients

Democratic presidential candidate Hillary Clinton has piled bad new ideas on top of bad old ideas with her plan to try to lower prescription drug prices in America.

Her proposals to rein in prescription drug costs involve forcing pharmaceutical companies to meet a government quota for investing in research, denying companies tax breaks for consumer advertising, and capping out-of-pocket expenses for individuals with chronic health problems. Those are the new ideas.

Clinton also is recycling ideas to allow Americans to import cheaper drugs from abroad, allow Medicare to “negotiate” prescription drug prices, and reduce the patent life for innovative drugs—stale old ideas that have failed to gain bipartisan traction.
Her government-centric solutions would impede creation of new treatments and cures, restrict access to medicines for patients, and, by distorting markets and treatment decisions, ultimately drive up health costs. The dangers are addressed here, here, and here.

The plan she announced on Tuesday during a speech in Iowa would “send a deep chill through investment in drug research and development,” according to PhRMA president and CEO John Castellani.

Requiring drug developers to provide “refunds” if they don’t invest in research following Washington’s rules would put them in a straightjacket. Pharmaceutical firms already invest five times more in R&D, relative to their sales, than the average U.S. manufacturing firm. Forcing them to jump through Washington’s regulatory hoops will divert this money from research for new drugs to complying with bureaucratic red tape.

Avik Roy, senior fellow at the Manhattan Institute, has dissected the problems with the Clinton plan here. “When it comes to FDA over-regulation, and the high barrier to entry for innovative new therapies, Hillary’s plan does absolutely zero. Indeed, by reducing the patent life of innovative drugs, her plan would make the risk-reward for new drug development even less favorable than it already is,” he writes.
But Roy saves the big guns for her plan to cap out-of-pocket spending for patients at $250 a month for covered drugs: “It would force insurance companies to further subsidize those high costs. That will encourage more patients to use costly drugs, and only encourage drug companies to charge higher prices. And those higher prices will be passed onto Americans in the form of higher premiums and higher taxes.”

The Clinton proposal would result in fewer new treatments for patients, restrict access to existing medicines, and result in lost jobs in one of the highest-paying, most dynamic industries in the country where we clearly are the world leader.

Recent opinion polls have shown that Americans are increasingly concerned about the cost of prescription drugs. But a new Morning Consult poll shows that a majority of voters oppose allowing the federal government to set the price of prescription drugs (51 percent to 36 percent). The poll also shows that voters understand government intervention would limit patient access to drugs (61 percent) and would lead to fewer new drugs being developed (65 percent).

By more than two to one, voters said they believe the private sector does a better job in negotiating prices than the government (48 percent to 24 percent).

The Congressional Budget Office agrees: Allowing the federal government to negotiate prescription drug prices will lead to little if any savings, the CBO has concluded. Part D plans “secured rebates somewhat larger than the average rebates observed in commercial health plans.” Drug plans negotiate fiercely with drug companies for the lowest prices, driven by consumer demand.

As a result, Part D is saving both seniors and taxpayers money. In 2004, the Medicare Trustees estimated that Medicare beneficiaries would pay an average of $61 a month for their prescription drug plans by 2013. But the average Medicare Part D premium for a basic plan is only half that amount now — about $32 a month. The CBO also reported that the Part D program has cost taxpayers an extraordinary 45 percent less than original estimates.

Given its massive buying power, the government wouldn’t “negotiate” prices—it would dictate them. The government’s basic strategy is: Take it or leave it. If pharmaceutical firms were to refuse the government’s offer to buy their drugs at arbitrarily low prices, the drugs could be dropped from the approved list and would not be available to seniors, resulting in less access to the drugs seniors need.

A better solution to lowering drug costs is to streamline the extremely expensive, lengthy, and cumbersome drug approval process so new treatments can get to market faster and spur greater price competition. When drug makers compete to sell similar treatments, prices drop.

And when Clinton says she will get pharmaceutical prices down, we need to look at the track record of Democrats in keeping these promises. President Obama said that the average American family would save $2,500 a year on health insurance premiums by the end of his first term. Instead, families have seen their premiums soar by that amount and more. More government mandates and bureaucracy aren’t the answer.

Lawmakers cannot bring down drug prices through government fiat. Competition is the only force that has been proven to work without decimating the industry and its research capabilities.

Posted on The Hill, September 30, 2015.


About the author

Grace-Marie Turner is president of the Galen Institute, a public policy research organization that she founded in 1995 to promote an informed debate over free-market ideas for health reform. Full biography