The high price of “cheap” drugs
California is losing the battle against opioid addiction. Every 45 minutes, someone in the Golden State overdoses. Fifty percent more people overdose today than in 2006.
Fortunately, the Food and Drug Administration just approved the anti-addiction treatment Probuphine. It’s an implant placed in a person’s upper arm, where it releases a steady stream of an anti-addiction drug called buprenorphine to help addicts stay sober.
Medical breakthroughs like this one could become rarer if a ballot measure under consideration in California is ratified this fall.
If passed by voters, the California Drug Price Relief Act would stipulate that no state agency could pay more for a drug than the U.S. Department of Veterans Affairs does. Federal law effectively gives the VA the power to impose price controls on the medicines it buys.
So the measure would import the VA’s price controls here into California. And that would be disastrous. Price controls on prescription drugs harm current patients by reducing access to the latest therapies, and harm future patients by halting investment in the next generation of cures.
On average, it takes $2.6 billion and no less than a decade to bring a new drug from the initial research stages to the market. Some estimates of industry research and development spending are as high as $5.9 billion per new drug.
Drug development is a risky business. Only 10 percent of drugs that begin preclinical testing ever reach clinical trials in humans. Of those, only two in 10 garner FDA approval.
If lawmakers cap drug prices, pharmaceutical companies will struggle to take in enough revenue to recoup their initial multibillion-dollar investments in R&D. And that will make it harder to fund future drug development.
According to the National Bureau of Economic Research, a 40 to 50 percent drop in drug prices would result in up to 60 percent fewer pharmaceutical products in the pipeline.
More than 3,000 new medications are currently in clinical trials in the Golden State, many of which could treat or cure some of the most debilitating diseases on the planet, such as HIV/AIDS and cancer.
If the California Drug Price Relief Act passes, pharmaceutical companies could lose millions of dollars – and thus struggle to keep these trials running.
But won’t price controls help patients today by making prescription drugs more affordable? Not really.
People would pay for some of the savings delivered by price controls with their lives. Researchers at the Rand Corporation ran a price-control simulation that reduced manufacturers’ revenues by 20 percent and found that it would save patients $1,100 – but eventually reduce life expectancy by more than 8 months.
Price controls also make drugs scarcer. Manufacturers reduce the amount they’ll make available at the lower price – or simply refuse to sell altogether. Look at the VA. Its formulary doesn’t cover 37 of the 200 most popular drugs used by seniors participating in Medicare Part D, the federal prescription drug benefit for seniors.
What’s more, forcibly reducing drug prices won’t save much money. Prescription drugs account for less than 10 percent of all health-related expenses in the United States. So a 20 percent reduction in drug prices would save the health care system just 2 percent.
Nevertheless, the ballot measure has won favor among candidates in the Democratic presidential race. Sen. Bernie Sanders, D-Vt., has supported the bill for “standing up to the pharmaceutical industry” – and pressured rival Hillary Clinton to do the same.
The California Drug Price Relief Act has qualified for the November ballot thanks to its sponsor, the AIDS Healthcare Foundation. If passed, it will stymie pharmaceutical innovation and harm patients. That’s too high a price to pay for a short-term savings fix.