Politics & Policy

To Modulate Drug Prices, We Need Less — Not More — Government Involvement

(Denisismagilov/Dreamstime)

In order to control escalating U.S. drug prices that seem to be disconnected from research, development, and manufacturing costs, an array of politicians, policy experts, and pundits have proposed a spectrum of government interventions of varying intrusiveness.

The proposals range from resurrecting previously rejected government price controls, including negotiated Medicare drug prices, “value-based pricing” (pegging reimbursement to predicted outcomes), capping out-of-pocket costs of certain drugs, and categorizing new drugs by their “comparative effectiveness.” There have even been suggestions that we should scrap patent monopolies and drug exclusivity, which would radically alter drug companies’ incentives to perform expensive research and development, the sine qua non of innovation.

Some of these suggestions sound plausible enough in light of lower prices in other countries — until you take into consideration the life-cycle of pharmaceuticals, the complexity and dynamics of the U.S. health-care system, and the relatively limited availability of new products in those countries.

Pharmaceutical pricing is anything but simple and transparent, not only because of global and national competition, but also because of inconsistent national laws, individual company practices, industry-wide insurance company discounts, and government rules that require preferential pricing, rebates, and discounts. American politicians often cite foreign countries’ approaches to controlling prices, but their very different market and reimbursement systems make it difficult to judge to what extent they are applicable to the United States.

The bottom line is that Americans pay (a lot) more to get more choices.

A critical difference between the U.S. and other systems is that foreign governments’ cost savings arise from a form of rationing. Simply stated, they often control costs by denying patients the opportunity to use certain superior but more expensive medical products, after having judged that the products do not show sufficient medical benefit to justify the additional cost. This sort of rationing is not done routinely in the United States. As Gail Wilensky, who ran U.S. Medicare and Medicaid reimbursement in the 1990s, was quoted as saying in a Wall Street Journal article, “If it’s an FDA-approved drug and prescribed by a duly licensed physician, Medicare will cover it.” Non-government insurers also most often cover approved drugs and medical devices.

The bottom line is that Americans pay (a lot) more to get more choices.

We should be wary of highly disruptive “reforms” in an effort to modulate spikes in the price of a relatively small number of troubling outliers. Prescriptive industry-wide requirements could have serious unintended consequences on the overall health of the U.S. pharmaceutical industry and the future availability of drugs for Americans. For example, establishing new U.S. governmental price controls would add yet another level of time-consuming bureaucratic review, provide new opportunities for companies to game the government regulations for competitive advantage, and discourage corporate investment and marketing in the United States. The net effect would likely be to delay or preclude access to new medical products.

Price controls in the United States have an extensive and dubious history. At various times the federal government, states, and even localities have imposed various price controls on items such as oil, electricity, apartment rents, and food and plane fares, but the benefits tend to be short-term at best, with unintended consequences including consumer dissatisfaction from shortages and curtailed industrial production, investment, and innovation.

Access to expensive drugs for patients who cannot readily afford them is a legitimate concern, but there are various assistance programs available for such patients offered by states, the pharmaceutical industry, and individual companies. For example, the Partnership for Prescription Assistance “brings together America’s biopharmaceutical research companies, physicians, patient advocacy organizations and civic groups to help uninsured and underinsured patients get prescription medicines for free or nearly free.” Since 2005, the PPA has helped nearly 9.5 million patients get access to public and private assistance programs.

Regulatory reforms to lower development costs and increase corporate competition and the number of innovative drugs and medical devices on the market in the United States would be far better than the imposition of clumsy, inefficient cost controls on access to newer products.

The detrimental effects of FDA delays in approving certain new drugs already available in other industrialized countries are well documented and deserve as much attention as drugs’ high costs. An example is the three-year delay in the approval of misoprostol, a drug for the treatment of gastric bleeding, which is estimated to have cost between 8,000 and 15,000 American lives per year.

The detrimental effects of FDA delays in approving certain new drugs already available in other industrialized countries are well documented and deserve as much attention as drugs’ high costs.

Another example was the sordid saga of a drug called pirfenidone, used to treat a pulmonary disorder called idiopathic pulmonary fibrosis (IPF), which killed tens of thousands of Americans annually. The cause of the disease is unknown, and there were no drug treatments approved for it in the United States until October 2014, although pirfenidone had already been marketed in Europe (since 2011), Japan (2008), Canada (2012), and China. Pirfenidone was approved in the EU on the basis of three randomized, double-blind, placebo-controlled studies, one conducted in Japan and the other two in Europe and the United States.

In spite of a recommendation for approval by an FDA advisory committee (comprised of outside experts) in 2010, agency officials opted not to approve the drug and demanded another major clinical study. The results, published in May 2014, were impressive, and the FDA finally approved the drug without fanfare in October 2014; but between 2010 and the approval, IPF killed more than 150,000 patients in the United States.

Another, more recent example is the FDA’s approval on November 24 of Fluad, a flu vaccine that contains an adjuvant, a substance called MF59 that boosts the immune response. It is intended for use in the elderly, whose immune response to flu vaccines is typically poor. (People over age 64 account for 80–90 percent of seasonal flu-related deaths and 50–70 percent of flu-related hospitalizations in the United States.)

Fluad has been in use in Italy since 1997 and is approved in 39 countries. That 18-year delay in availability in the United States surely resulted in thousands of avoidable deaths.

While others have proposed lowering barriers to drug imports, we prefer a more definitive variation on that theme which would address both drugs’ availability and also the redundant, time consuming, expensive, and duplicative reviews by the FDA and its foreign counterparts. We propose the introduction of “reciprocity” of drug and medical-device approvals with certain of the U.S. FDA’s foreign counterparts, so that an approval in one country would be reciprocated automatically (subject to the creation of approved labeling, etc.) by the others. That would make more drugs available sooner in the United States (and other participating countries), increase competition, and put downward pressure on prices. Availability is critical, because if a drug is not available, then price is irrelevant.

Reciprocity of approvals would also help to alleviate the pressing problem in this country of shortages of certain critical drugs, many of which have been essential in medical practice for decades. The majority are generic injectable medications commonly used in hospitals, including analgesics, cancer drugs, anesthetics, antipsychotics for psychiatric emergencies, and electrolytes needed for patients on IV supplementation. Hospitals are scrambling to assure adequate supplies of drugs that are in short supply, or to find substitutes for them.

The FDA is severely limited in what it can do to address shortages. The agency’s recently launched app to enable health-care providers to keep current on shortages informs about the problem but doesn’t really remedy it. Reciprocity of approvals would make numerous needed alternative drugs available.

Reciprocity could have been in place decades ago if only the FDA had met its long-standing commitment to pursue it through the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH). There has been some progress at the margins. Countries now have a standardized dossier for seeking approval of new drugs, the United States accepts research conducted in other countries to support applications for the approval of new drugs and devices, and the FDA has established Good Manufacturing Practices for foreign production facilities.

The ICH’s agenda (supposedly) includes reciprocity of drug approvals among certain governments — but generations of FDA officials have resisted any such “delegation” of their responsibilities. When a senior European regulator was asked about the extent of the FDA’s cooperation on this issue, she quipped, “It’s like discussing the Thanksgiving dinner menu with the turkeys.”

The benefits of reciprocity would not be limited to the United States.

There are precedents for both Congress and the executive branch reducing the barriers to international trade in drugs and medical devices. For example, the FDA Export Reform and Enhancement Act of 1996 substantially reduced many of the regulatory obstacles previously associated with exporting unapproved drug, biologics, and device products from the United States to countries where they are approved. Indeed, the law recognizes a group of countries that have medical-product regulatory agencies comparable to the FDA. In addition, the United States has sought greater regulatory efficiency through numerous international agreements such as NAFTA, the recently concluded Trans Pacific Partnership talks, and the ongoing Transatlantic Trade and Investment Partnership.

The benefits of reciprocity would not be limited to the United States. Other nations with comparable drug and medical-device regulatory regimes would also achieve increased efficiency because reciprocity would accelerate marketing approval in their respective countries. Not only would their patients benefit from increased product availability, but increased world-wide competition among drugmakers would place downward pressure on prices.

The bottom line is that we need more competition — not more regulation — and reciprocity of medical-product regulatory decisions would be an important advance. Congress should mandate it, encourage other governments to participate, and take a pass on proposals for ever more intrusive government involvement in drug research, development, and pricing.

— Henry I. Miller, a physician and molecular biologist, is the Robert Wesson Fellow in Scientific Philosophy and Public Policy at Stanford University’s Hoover Institution. He was the founding director of the FDA’s Office of Biotechnology. John J. Cohrssen is an attorney who has served in a number of government posts in the executive and legislative branches of the federal government, including as counsel to the White House Biotechnology Working Group, associate director of the President’s Council on Competitiveness, and counsel for the House Energy and Commerce Committee.

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