Tuesday’s election elated millions of Americans and disappointed millions more. Among the former were drug industry leaders, buoyed by the defeat of Proposition 61 in California.
The measure would have required that Californians pay for medications only what the Department of Veterans Affairs pays, after mandatory rebates. Pharmaceutical companies correctly saw Proposition 61 as a first step toward price controls. They poured a record $125 million into the campaign to defeat it and handily beat a coalition of activists that spent about a tenth of that amount. Industry leaders hope that sends a strong message to other states contemplating similar measures.
But it’s not clear that message will resonate in Washington, where a populist-fueled Donald Trump administration is about to take power.
The industry has assembled another $100 million war chest to lobby against what might come, including Trump campaign calls for Medicare to begin direct drug price negotiations and opening the door to foreign imports.
In the current political environment, the industry’s political money can work against itself, feeding a narrative of greedy companies using the system to advance big price hikes and protect big profits. It is a story that tracks across otherwise sharply divided party lines. According to a HealthDay/Harris national poll taken just before the election, 81 percent of Americans now support price controls or caps on drugs and medical devices.
There is a better way. To forestall damaging government interventions, the industry must reaffirm its essential mission and recalibrate its legislative goals. It needs to get behind policy solutions that lower prices and improve access for patients today without discouraging investments into tomorrow’s valuable medical innovations.
A great deal is at stake beyond shareholder value. Finding treatments and cures for the killer ailments of our day — cancer and Alzheimer’s, for starters — depends on vibrant and resourceful pharmaceutical companies. They are spending billions looking for new medicines, and that flow could dry up fast if market returns shrink under government policies aimed solely at cost control.
Here is a policy prescription list for the drug industry as it prepares for a new administration and Congress. It involves compromise and repositioning. It might not change public opinion overnight, but it is an important start to preserving the innovation that is now at risk.
Find common ground on generic prices. Outsized prices on established drugs with little competition must be reined in. The drug industry should work on a government-based solution in which the FDA assembles a watch list of essential generics with competition and/or supply problems, and can act in the short term to allow imports. It can also urge the government to buy and stockpile such drugs in the long term, which would encourage new manufacturers while also keeping prices from rising. Meanwhile, keep pushing for more rapid FDA approval of generic drugs and more aggressive antitrust enforcement to heighten competition.
Give ground on patents. The 30-year-old Hatch-Waxman Act extended patent protection for innovative drugs. It also allowed companies to keep clinical trial data under wraps for various periods, which slowed potential competitors. It’s time to revisit these benefits as a compromise to possible price controls on branded drugs. Unlike government price controls, patent length reductions can promote efficient pricing by encouraging competition and the entry of new firms.
Lay the groundwork to aid consumers. Rising deductibles and premiums are exposing consumers to higher drug prices and forcing many to forgo filling prescriptions. Limiting out-of-pocket costs should be a priority for pharmaceutical industry lobbyists. Further subsidizing prescription drug insurance, for example by expanding the reach of the Medicare Part D program, would improve affordability and could even reduce drug prices as the insurers that manage Part D plans gain more bargaining power.
Preserve the high ground for truly novel and valuable medicines. Some drugs deserve high returns because of their long-term value to society, but are driving headlines over their pricing. Value-based pricing would allow better access at launch, while tying returns to demonstrated results over time. Greater government involvement may be needed to push such arrangements in the face of drug company and insurer inertia.
These proposals, taken together, should restrain pharmaceutical price growth within a well-functioning market. Expanding subsidies for prescription drug insurance, shortening patent length, and requiring or encouraging lower generic drug prices attack the problem from the beginning to the end of the drug-life cycle. They would also preserve the choice and market discipline that Americans have long valued in health care.
Dana Goldman, PhD, is the director of the Leonard D. Schaeffer Center for Health Policy & Economics at the University of Southern California. Darius Lakdawalla, PhD, holds the Quintiles Chair in Pharmaceutical Development and Regulatory Innovation at USC. They are cofounders of, and own equity in, Precision Health Economics, a company that provides consulting services to the life sciences industry. Lakdawalla serves as chief scientific officer, and Goldman as a consultant.
I agree that shortening the effective term of the monopoly is good tool to deal with excessive pricing, excessive returns, to reduce costs to the system. The policy needs triggers, and an enabling legal environment to grant compulsory licenses on patents, test data and other sui generis monopoly rights. One can also conceive of a program of progressive delinkage, where increased subsidies for trial costs and/or cash prizes for market entry, and combined with shorter legal monopolies, another approach that avoids picking an appropriate price, but does require policies on when to end the monopoly, and why.
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