Pharmaceutical Drug Pricing Solution:

Government Intervention to Spread the Burden Globally

Due to a recent media explosion surrounding the Shkreli price-gouge, the intermingled economic and political dynamics of the Pharmaceutical industry are being placed under heavy scrutiny, and for justified reason. The current system is unbridled and unchecked, and will continue this way absent of government intervention. Congress must institute a unique regulatory approach involving international accord to inject balance into this unsustainable system.

It is a well-circulated fact that citizens in many other developed nations pay a fraction of what Americans are paying for their drugs. [i] This has translated to mean that U.S. consumers are fronting much of the bill for new drug research and development — a benefit that is enjoyed internationally. Fewer dollars to incentivize the development of new drugs should come from our home soil, and more from consumers abroad. To achieve this, Congress should implement a “tethered price regulation”, as proposed by Rafi Mohammed, a Cambridge, Massachusetts-based pricing strategy consultant. In Mohammed’s plan, he proposes Congress pass a law “that says neither American insurers nor government agencies would pay more than a set percentage above (or below) what other developed countries pay for drugs.” [ii]Tethering our prices to theirs would mean lower prices for Americans and no longer shouldering a disproportionate share of drug development costs.

Of course there is a multilateral flip-side to this argument of regulation which is what has thus far prevented any changes from being made. One factor experts use to explain lower prices in other countries “is that their health systems are willing to limit their citizens’ access to drugs in exchange for getting lower drug prices. Without limiting access, these governments would have only modest leverage to seek lower prices.” Attempting to limit access like this in America would undoubtedly be met with pushback and would need an intricate plan of its own.

Another key layer to the mess is patents. Currently, patents protect drugs from being copied 20 years after the drug is invented — not after it has been FDA approved. This is a big issue because “it can take eight years or more after invention to accumulate enough data to get a drug past the U.S. Food and Drug Administration. Once the patent expires, 80% of the brand names sales can vanish within a year as generic competitors reach the market.” [iii] This shortened clock leads drug companies to charge a premium while they can, as their window to do so is not infinite.

Our current political context is ripe for change, though, as the upcoming Presidential election has front-runner candidates giving much needed thought to the issue. While leading Republican contenders are less eager to add regulations, Democratic presidential candidates Hillary Clinton and Bernie Sanders have issued extensive statements on their approaches to combat rising drug prices.

An important aspect of the Clinton plan includes requiring drug companies that benefit from federal research programs to invest in research, as nine out of 10 big pharmaceutical companies currently spend more on marketing than on research.[iv] Clinton also seeks to “prohibit ‘pay for delay’ arrangements that now permit branded drug companies to pay generic manufacturers to keep generic equivalents off the market”.

Bernie Sanders’ plan includes provisions to “close the Medicare coverage gap, known as the “donut hole,” by 2017; the current law will close it by 2020.” However, the absence of drug-pricing proposals from the GOP contenders illustrates another difficulty for instituting regulation, as it would be very challenging for Sanders or Clinton to get Congressional approval if they were to become President.

Finally, another issue not to be ignored is the fact that any measures that reduce financial payoffs to drug companies likely would lessen incentives to develop drugs in the first place. From this perspective, Pharma pricing regulation could ultimately stunt the advancement of the very product it is seeking to make more accessible.

These counter-arguments aside, it is blatant that the current system is flawed. For decades the Pharmaceutical industry, like the other industries of the free market, has enjoyed a position of control and power over their pricing, setting the ceiling to maximize profit gains. Business-oriented pharma suppliers rightly seek the highest price they can — just like everyone else in the game. Unlike other products being released into the free market, however, Pharmaceutical drug products are distinctively in a category of their own. Medicine and subsequent good health is arguably the most valuable of products — a priceless entity for those who don’t have it or can’t access it. We don’t value iPhones or automobiles and cancer drugs on the same scale, and therefore should not price them with the same framework either.

[i] Moeller, Philip. “Lower Drug Prices: Does Any Candidate Have an Rx?” PBS. PBS, 10 Feb. 2016. Web. 10 Feb. 2016.

[ii] Rafi Mohammed. “It’s Time to Rein in Exorbitant Pharmaceutical Prices.” Harvard Business Review. Harvard Business Review, 22 Sept. 2015. Web. 10 Feb. 2016.

[iii] Herper, Matthew. “Solving The Drug Patent Problem.” Forbes. Forbes Magazine, 02 Mar. 2002. Web. 10 Feb. 2016.

[iv] Swanson, Ana. “Big Pharmaceutical Companies Are Spending Far More on Marketing than Research.” Washington Post. The Washington Post, 11 Feb. 2016. Web. 10 Feb. 2016.