By
Wayne Winegarden
February 11, 2019
Health and Human Services Secretary Alex Azar just
released a sweeping proposal that would drastically change how Medicare pays
for advanced cancer therapies and other potent medicines. The plan relies on
foreign price controls to reduce drug spending by $17 billion over five years.
Although drug spending may decline, the plan could
increase health care spending elsewhere, as patients inevitably lose access to
medicines. So while the savings is questionable, the negative health impact on
patients is certain. Sec. Azar ought to find a better way.
The changes would affect Medicare Part B, which covers
drugs administered in doctor's offices, clinics and hospitals. These medicines
include injectable treatments for cancer and other diseases.
Doctors buy these medicines themselves and then bill
Medicare for reimbursement. The government pays doctors the average U.S. price
of the drug, plus a markup to cover administrative costs.
Administration officials correctly note these drugs cost
more in the United States than in other countries, which impose strict price
controls on medications. These countries contribute little to global research
and development, but reap the rewards of R&D conducted in the United
States.
To end this "global freeloading," the
administration wants to create an "International Pricing Index."
Medicare would no longer set reimbursements based on the average U.S. sales
price. Instead, it would tie reimbursements to the prices paid in 14 other
countries — a practice known as "reference pricing."
These countries enjoy lower drug costs, thanks to their
price controls. But this comes at a cost.
Take the United Kingdom, where a government agency makes
unilateral decisions about which medications are worth the money. British
patients can't obtain many of the newest medications that Americans take for
granted. Americans could access roughly 90 percent of all the medicines
released worldwide between 2011 and 2017. British patients could only access
two-thirds of those drugs.
In short, the administration's proposal would lower
domestic prices — but only by restricting patients’ access to
state-of-the-art medicines.
Imposing price controls would also have a chilling effect
on research and development. Pharmaceutical investors won't pour billions into
risky research projects if there's little chance to earn a return. Breakthrough
cures may go undiscovered, dooming millions of future patients.
President Trump has repeatedly promised to protect
Americans from foreign freeloaders. His trade negotiators have bashed other
countries' reference pricing schemes. And his administration has successfully
strengthened intellectual property protections in the revised free trade deal
with South Korea and the new United States-Mexico-Canada Agreement. These
stronger IP protections will help create more accurate, market-based prices for
U.S. drugs.
Given the anti-price-control actions taken by the rest of
the administration, it's shocking that Sec. Azar is embracing such a
wrongheaded policy. The proposal might save the government some money, but it
would make it harder for patients to get medicines they need.
Wayne Winegarden is the
senior fellow in business and economics at the Pacific Research Institute and
the principal of Capitol Economic Advisors.
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