Several Proposals to Reduce Drug Prices in Congress

July 9, 2019

 The 4th of July is over and Congress is back in session. One of the most important issues for policymakers, health care experts, and ordinary Americans is the rising cost of prescription drugs. The New York Times editorial board just said that "nothing typifies the failures of health care in the United States like prescription drugs. Americans pay more for their medications — including those developed in America, with taxpayer dollars — than residents of any other country in the world." In a sharply worded editorial, the board called for sweeping reforms to lower drug prices. 

 

The Times also pointed out that despite President Trump's promises to reduce drug prices and his claim that drug companies are "getting away with murder," drug prices are still going up. The rule to eliminate safe harbor protection for pharmacy benefit manager (PBM) rebates and to require that rebates are passed on to consumers is very promising, but it has not been implemented yet. Importing more affordable medicines from Canada is also good, but it will take time and careful planning to do effectively.

 

But there are other proposals that the Trump administration and Congress could enact. The first proposal is to price drugs based on the benefits they provide, similar to how other countries price them. For example, Germany will only pay more money for a new prescription drug if it is better than the older version. And Britain will only cover a new drug if it provides a lot of benefits relative to its price. The Department of Health and Human Services could evaluate and list medicines based on how cost effective they are. As we previously wrote, the nonprofit Institute for Clinical and Economic Review, based in Massachusetts, does something like this and the federal government could follow its model.

 

Another proposal is giving Medicare the power to negotiate with drug companies for lower drug costs. Right now Medicare has to cover almost all drugs that the Food and Drug Administration approves at whatever price that drug companies set. In other countries, the governments often use data and bargain with drug manufacturers to drive prices down. Giving Medicare this power would substantially lower drug costs--and save the federal government substantial money.

 

A third idea is that the federal government could seize the patents on FDA approved drugs and make them. Section 1498 has the power of eminent domain and allows the government to override any patent if the patent holder is fairly compensated. The federal government could use this section to override patents on medicines that are too expensive. In fact, in the 1950s and 1960s it did just that! Another statute gives the federal government the power to seize the patents on any product invented with government funds. A lot of basic prescription drug research is funded by the National Institutes of Health or other government agencies.

 

The last proposal is for the Federal Trade Commission to investigate anti-competitive practices by drug companies that increase prices and delay competition, and to levy fines where possible. The FTC has substantial power to crack down on this behavior but in recent years has shied away from using it.

 

All these ideas are excellent, and policymakers should take note. The time to act is now.

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