Medicare price controls would harm patients and workers
By Wayne Winegarden
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 healthcare 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 that 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 research and development 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.
The viewpoints expressed above are those of the author and do not necessarily reflect those of The Independent.
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