Government negotiations are not the way to bring down prices.
It doesn’t take a political genius to realize that, to stay in office, any elected Republican in Massachusetts will have to endorse a liberal policy from time to time. So it took no one by surprise when Governor Charlie Baker announced his plan to lower Massachusetts’s spending on prescription drugs by increasing the state’s role in price negotiations.
Unfortunately, Baker’s proposal is little more than a PR move and just the latest high-profile example of the misguided push to rein in drug prices by bullying the companies working to treat the worst diseases.
Last year, Massachusetts spent $1.9 billion on prescription drugs covered through MassHealth, the state’s Medicaid program. The goal of the governor’s plan is to reduce this figure by directly negotiating the prices of 20 drugs with a collective price tag of $100 million a year. According to the governor, the plan, which outlines four steps the state can take to reduce its drug spending, would save $80 million a year.
While it may sound fiscally responsible on its face, the plan moves quickly from empowering MassHealth to negotiate additional rebates and discounts to allowing the state attorney general to prosecute drug companies under consumer-protection laws if these negotiations fail.
It’s unclear what happens after this final step, since the state can’t compel drug companies to offer a discount, and Medicaid programs must cover essentially every drug. Most likely, even the most vicious standoff would end with MassHealth paying the originally negotiated price.
If Baker’s plan doesn’t make sense from a policy perspective, that’s because it was almost certainly designed with political ends in mind. While its stated aim is to reduce Massachusetts’s drug spending, the policy’s goal in practice is to shame and bully drug companies into lowering their prices — the result of which will be less innovation and fewer life-changing drugs on the market.
Governor Baker isn’t alone, and the timing of his proposal is no coincidence. Vilifying the pharmaceutical industry has become a bipartisan activity, as President Trump continues to follow Democrats’ lead. By going after drug companies now, Baker is scoring points in his overwhelmingly liberal state while the president’s actions largely shield him from conservative critiques as well.
Baker’s proposal adds to the growing consensus that drug companies make too much money and ought to have their profits regulated or cut by government. People who hold these views point to cases such as the EpiPen’s skyrocketing price as proof that pharmaceutical greed knows no bounds and is completely divorced from actual drug development.
But what happened with EpiPen — a drug company exploiting loopholes in the patent system to raise the price on a cheap generic drug used by millions of Americans — is the exception, not the rule. In general, it costs nearly $3 billion to develop a new drug, and drug prices tend to increase in proportion with the medical advancement they bring. In other words, drug companies charge high prices for drugs in order to recoup their investment and fund future drug development.
Consider Luxturna, a gene therapy that cures certain forms of hereditary blindness. With a price tag of around $1 million for a course of treatment, Luxturna is exactly the kind of drug Baker’s plan is aimed at addressing. While it’s easy to balk at the price, it’s also important to remember that this drug cures blindness. We want more drugs like this, not fewer. It’s crucial that we find ways to make these drugs affordable to patients without simply requiring drug companies to lower their prices, which would cut off future innovation.
One viable solution is the so-called “Netflix model” proposed by Louisiana governor John Edwards. Under this model, Louisiana would pay a yearly subscription fee in exchange for unlimited access to hepatitis C drugs. By incurring the cost of treatment ($24,000 for a generic when purchased individually), Louisiana will avoid having to cover the more expensive treatments associated with untreated hep C, such as liver transplants ($577,000) and dialysis (up to $72,000 a year). Analysts predict this model would allow Louisiana to treat 10,000 patients by 2020, ultimately saving the state money.
The Netflix model may not work for every drug in every state, but it is a helpful reminder that when it comes to controlling drug spending, states have plenty of options beyond simply demanding lower prices. If Governor Baker wants to cut his budget without sacrificing the health of his constituents or his economy, it’s time to go back to the drawing board.