Executive Order for Price Controls Will Harm Innovation and Patients
By Erik Paulsen
President Trump just signed a new executive order to reform our healthcare system. While his desire to lower costs for patients is appropriate, the proposed changes would do more harm than good.
The new "most-favored-nation" executive order would tie Medicare payments for certain medicines to the lowest price paid in other foreign nations. While this would result in some modest and short-term government savings, it would also have disastrous consequences for American patients and severely restrict the discovery of new life-improving and life-saving drugs that target ailments like Alzheimer's, Parkinson’s and cancer.
On average, biopharmaceutical firms spend nearly a quarter of their total sales on the research and development of new drugs. These same firms recoup most of their investment through sales in the United States. In other words, the United States single-handedly funds the majority of the world's biopharmaceutical medicines.
Many foreign countries have government-controlled healthcare and routinely set the prices for drugs through discriminatory government price controls. If Medicare started paying these artificially low rates -- rather than a market or value-based rate it currently pays -- funding for research and development would plummet, and patients would wait longer for new treatments and cures.
This is particularly true in oncology, where new products prolong the life expectancy for cancer patients. It can take 10 to 15 years to bring a promising compound out of the lab and into the marketplace. Roughly 90 percent of compounds never make it past clinical trials. Accounting for this high failure rate, each drug requires an investment of $2.6 billion on average, according to a Tufts University study.
If price controls prevent innovative companies from recouping their R&D, they will have less capital to invest in new treatments -- slowing the progress in helping patients realize a cure for cancer, Alzheimer's, and other diseases. By one estimate, importing these price controls could reduce research into breakthrough medical treatments by up to 10 percent.
Ostensibly, the executive order would force drug makers to charge other developed countries more -- so that Americans can pay less. That's a worthy objective.
But the plan won't work. Other countries with socialized healthcare already ration medical care and treatments. Patients in those nations have access to only a fraction of the cutting-edge medicines available in America. For instance, patients in the United Kingdom and Japan could only access 70 percent and 58 percent, respectively, of all new cancer medicines launched within the last decade. Patients in the United States, meanwhile, could access 96 percent of those therapies.
Despite the recent executive order, those countries will surely keep their bureaucratic price controls in place, no matter the effect on their citizens' health. Instead the administration should aggressively address these unfair practices by foreign countries through our international trade negotiations -- starting with ongoing negotiations with the United Kingdom and Japan.
The President's proposal, though well-intentioned, threatens to undo the discovery, development and deployment of new life-improving and life-saving medicines. As our nation continues to navigate the most severe public health crisis in recent memory, the administration should be looking for more effective ways to encourage medical innovation -- not stifle it.
Erik Paulsen represented Minnesota in the U.S. House of Representatives from 2009 to 2019.
