Politics & Policy

To Modulate Drug Prices, We Need Less Regulation and More Competition

(Photo: Carolyn Franks/Dreamstime)
Allowing drugs in the U.S. that have been approved abroad would greatly help patients, providers, and producers.

To control escalating U.S. drug prices that seem to be disconnected from research, development, and manufacturing costs, an array of politicians, policy wonks, and pundits have proposed a spectrum of government interventions. The Senate Special Committee on Aging is the latest to weigh in, with a report that makes various recommendations.

Characteristically, it focuses on high-profile abuses and proposes only tepid measures to “rein in price spikes in off-patent, decades-old drugs purchased by companies that did not bear the drugs’ research and development costs.”

The report urged, for example, that the Food and Drug Administration be given expanded authority to allow imports of medicines from countries with drug-safety standards similar to those in the United States, but only in narrowly defined circumstances, such as when consumers face sharp, sudden increases in the price of off-patent drugs that have no competition. (Regulators already have the ability to allow imports when there are acute critical shortages of approved drugs in this country.) But the Senate recommendations would require the imports to end “as soon as the monopoly was broken up.”

There is certainly sympathy from the incoming administration for reform of drug regulation. President Trump pledged during the campaign to “remove barriers to entry” of “imported safe and dependable drugs from overseas,” and he told Time magazine after the election: “I’m going to bring down drug prices. I don’t like what’s happened with drug prices.”

That’s a widely shared sentiment, but pharmaceutical pricing is neither simple nor 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 the extent to which they are applicable to the United States.

Foreign governments’ cost savings arise from price controls and refusal to pay for drugs that do not show sufficient medical benefit to justify the cost. This sort of technology assessment is not done routinely in the United States. “If it’s an FDA-approved drug and prescribed by a duly licensed physician, Medicare will cover it,” notes Gail Wilensky, who ran U.S. Medicare and Medicaid reimbursement in the 1990s. Non-government insurers also often (but not always) cover approved drugs and medical devices.

Government-imposed price controls on a wide variety of goods have an extensive and unhappy history in the United States. At various times the federal government, states, and even localities have imposed price controls on items such as oil, electricity, apartment rents, 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.

The availability of expensive drugs to patients who cannot readily afford them is a legitimate concern, but various assistance programs are available for them, 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.

A far better way to modulate prices would be regulatory reforms to lower development costs and increase corporate competition — which would in turn increase the number of innovative drugs and medical devices on the market in the United States.

A far better way to modulate prices would be regulatory reforms to lower development costs and increase corporate competition.

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.

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 (consisting 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 in November 2016 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 to 90 percent of seasonal flu-related deaths and 50 to 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 nearly two-decade delay in availability in the United States surely resulted in thousands of avoidable deaths.

While the authors of the recent Senate committee report, among others, have proposed lowering barriers to drug imports, a variation on that theme is available that would address both drugs’ availability and the redundant, time-consuming, expensive, and duplicative reviews by the FDA and its foreign counterparts. That variation would involve routine, automatic “reciprocity” of drug and medical-device approvals with certain of the 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 serious 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 intravenous supplementation. Hospitals are scrambling to ensure adequate amounts 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 critical alternative drug choices available.

Reciprocity could have been in place decades ago if only the FDA had met its longstanding 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.”

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, device, and biologics products from the United States to countries where they are approved. Indeed, the act recognizes a group of countries that have medical-product regulatory agencies comparable to the FDA.

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 make additional drugs available in those countries too. Not only would their patients benefit from increased product availability, but increased worldwide competition among drug makers should 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.

— 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 and a fellow at the Competitive Enterprise Institute. 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, 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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