Would you vote for legislation to lower drug prices that would lead to a five percent reduction in pharmaceutical innovation — yet simultaneously create a health system in which all Americans could afford the prescription drugs they need? That’s compared to the one we have now where a quarter of Americans struggle with drug prices. I would vote for it. But how about a 10%, 20%, 25% reduction in R&D? Is it really a tradeoff at all?
Yesterday, a very important, seminal op-ed was published in the New York Times called “Taxpayers Fund Research and Drug Companies Make a Fortune.” Many of us know that, to scare us, the drug companies claim there will no longer be pharmaceutical innovation if the government enacts policies to lower drug prices: without those outrageously high drug prices there won’t be enough money for R&D. Within the context of the global pandemic and a coming battle in Congress about the high cost of prescription drugs, Patients for Affordable Drugs founder David Mitchell tactfully presents the roadmap of Covid vaccine development to prevent people from buying into Big Pharma’s scare tactic. He reminds us that the vaccines were developed with billions of taxpayer dollars. Mr. Mitchell, polite to a tee in tone, essentially calls out their bullshit.
His conclusion is that we can start by allowing Medicare to negotiate drug prices. “We can have lower prices as well as innovation,” says Mr. Mitchell. In fact, as economics Professor Stephen Salant and I wrote in The Hill, the expected savings of $50 billion a year by lowering drug prices can be used for additional public funding of pharmaceutical R&D to offset reductions in R&D from drug companies. But, returning to the opening of this post, what if that’s not the case?
The Congressional Budget Office’s analysis finds that there will be tradeoffs. CBO looked at what would happen to the drug price market if elements of the Lower Drug Prices Now Act of 2019 (H.R. 3) were implemented. H.R. 3 contained policies to negotiate drug prices for Medicare. The savings to the government would be about $345 billion between 2023-2029 because of lower prices. However, over a 10-year period, CBO estimates that 8-15 fewer drugs would be developed in a landscape of about 30 new drugs per year today or 300 over 10 years. At the higher range, that’s five percent fewer new drugs.
Let’s look at the elephant in the room. Drug companies also spend billions of dollars on drug development – even if that development relied on taxpayer funded basic research. The horizon for drug innovation will evolve when drug company profits decline. It’s not guaranteed that we will have the same level of innovation. But, even if we don’t, why run away from a future where pharmaceutical R&D is still thriving AND people in the U.S. are not getting sick or dying because they can’t afford drugs that they helped develop through their taxes?