The Drug Price-Control Threat

WSJ editorial. Excerpts:

"The reality is that Medicare’s prescription benefit known as Part D is run by commercial payers that already negotiate steep discounts"

"European countries make trade-offs that are severe but often not transparent. Britain’s National Health Service routinely puts conditions on which patients can receive oncology drugs, for instance. Some drugs are denied approval on grounds that they don’t produce results worth the cost, a judgment most American patients might prefer to make themselves. The Food and Drug Administration doesn’t consider cost, at least not explicitly.

Price controls in Europe mean drug companies must recoup most of their investment in the U.S. market. But the Sanders bill wants drug developers to spend years and take extraordinary risk to develop drugs, even as government could invalidate their patents on a political whim. This new political risk means less capital for drug development."

"Senator Elizabeth Warren waded in recently with a bill to let the government manufacture generic drugs, which are the commodity version of a branded product. This is shooting at the wrong target, given that generic drugs represent 90% of prescriptions yet less than 25% of prescription drug costs."

"Mrs. Warren wants government to solve drug shortages created in part by government. Some hospital drugs are often in short supply because making these drugs in sterile facilities is expensive and difficult, yet government basically reimburses these drugs at cost. This means only large companies have the economies of scale to make the drugs, and even they sometimes can’t make money. If one of these companies stops producing the drug, a third of the supply can dry up.

Government could agree to pay more than cost for the drugs. But “higher reimbursement rates for certain generic drugs” is not a winning political line, which explains the bipartisan glibness on high drug prices. Mrs. Warren’s new government drug manufacturer would undercut every generic producer on the market, which would reduce the reason to bring any drug to market. This “populism” would result in higher prices."