Senator Sanders is Mistaken About Price Controls
By John Murphy
Senator Bernie Sanders will soon introduce a bill that, in his words, would prevent "the pharmaceutical industry from charging more for prescription drugs in the U.S. than they do in Canada, Britain, Germany, France, and Japan."
He's working hard to drum up bipartisan support. In a recent FoxNews op-ed, he touted former President Trump's endorsement of a similar measure and claimed that many Republicans and conservatives are already "united" with Democrats on this issue.
Sen. Sanders clearly believes that the solution to drug prices in the United States is simple: just impose government price controls and all will be well. It's an appealing thought -- the notion that Congress could make medical innovation less expensive by legislative fiat.
But it's not based in reality. The senator is ignoring the trade-offs that American patients must consider when evaluating price controls on medicines.
First, we need to face the fact that the systems in place in Europe and Canada are hardly a bed of roses for patients there. A recent study published in Canadian Health Policy explores how price controls have severely restricted Canadian patients' access to innovative new medicines. In fact, in 2020 less than half of new medicines submitted to the U.S. FDA were also submitted to Health Canada for approval. As the authors summarize, "Canada's policy towards new medicines needs to change from obsessive cost-containment to reviving biopharmaceutical research and manufacturing and ensuring patient access."
Canada is no outlier. Socialized healthcare systems throughout the world heavily restrict patients' access to new medicines. A study of 220 new drugs launched in 36 countries between 2011 and 2017 is illustrative. Once approved by a regulator, nearly 90% of these medicines were widely available to U.S. patients, while barely half were available to patients in Europe -- and even fewer in Australia.
Sen. Sanders juxtaposes the price of medicines in European nations and Canada against the generally higher prices of the same drugs in the United States. But he ignores the basic economic reality that someone has to pay for drug research and development.
Right now, Europeans and others are free-riding on America -- eight in 10 drugs in the pipeline are under development here, mostly at small startups, and even those being developed elsewhere depend on the U.S. market to make the economics of drug development work.
American leaders should insist that foreign healthcare systems start paying their fair share of R&D costs. But cutting U.S. drug prices down to European levels wouldn't help American patients. It'd simply disincentivize R&D investments, ultimately resulting in fewer new drugs for patients both here and abroad.
Middlemen -- insurers and pharmacy benefit managers -- are responsible for the lion's share of the cost increases patients have faced. Drug manufacturer discounts and rebates to insurers amounted to more than $200 billion off list prices in 2021. Little of that made its way directly to patients.
In fact, many insurers base patient out-of-pocket cost-sharing at the pharmacy counter on the medication's list price, even though the insurer is paying much less thanks to secret discounts. For certain medications, it is not at all uncommon for a patient's cost-sharing requirement to exceed the total amount that the insurer paid to acquire the drug.
Sen. Sanders is right that too many Americans struggle to afford their medicines. But his proposed solutions ignore very real trade-offs and do nothing to address the middlemen driving costs higher.
John Murphy is the Chief Policy Officer and Healthcare Counsel at the Biotechnology Innovation Organization. This piece originally appeared in RealClearPolicy.
