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Investor's Business Daily


How To Liberate New Frontier Of Modern American Medicine

November 09, 2011

By Douglas Holtz-Eakin

The United States has long led the world in medical innovation, and its skill at developing lifesaving drugs and devices produces enormous economic value.

In a 2011 report prepared for the Pharmaceutical Research and Manufacturers of America, Batelle Technology, a research organization, estimates that the biopharmaceutical sector pumps more than $917 billion into the American economy annually and employs more than 674,000 workers, whose average annual wages more than double the U.S. private-sector average.

Biopharmaceuticals are second only to aerospace products as the nation’s leading export. And new therapies for everything from cancer to depression enable Americans (and people all over the world) to live longer, more productive lives.

Unfortunately, future American leadership in drugs and medical devices is far from guaranteed. In addition to nimble competitors springing up in China, India, and Singapore, the United States faces obstacles of its own making, including an overly risk-averse Food and Drug Administration (FDA); counterproductive tax and tort policies; and the Obama administration’s efforts to centralize control of American health care in Washington.

The long trials for new medicines that the FDA requires pose a serious threat to future innovation. In 1985, trials averaged about 1,700 patients; by 2005, that number had risen to 4,200. The average drug’s clinical trials lasted just 2 1/2 years in the 1960s, compared with nearly 7 1/2 years now. It can sometimes take 10 or even 15 years to bring a new drug to market today, and it can cost $1.3 billion.

The path to market for medical devices doesn’t appear to be much better. In July, an FDA advisory committee voted nearly unanimously to approve an innovative heart valve for severe aortic stenosis, a condition that reduces blood flow from the heart. The product has been available to European patients since 2007.

Another barrier to American drug and medical-device innovation is the country’s high corporate tax rate. The U.S. is unique among developed countries, moreover, in taxing the worldwide earnings of its global firms; other countries tax only the earnings that occur within their borders.

But the greatest threat to innovation is the Patient Protection and Affordable Care Act of 2010, often called ObamaCare. The law’s newly created Independent Payment Advisory Board (IPAB) threatens the market incentives on which innovation relies.

Starting in 2015, if Medicare spending rises above a set threshold, IPAB, a 15-member panel of unelected experts, is supposed to get it under control. IPAB is likely to focus on cutting reimbursements for expensive new medicines and medical devices. Innovative treatments for cancer and other tough-to-treat diseases will be the first to feel the price-control pinch.

Ensuring future U.S. leadership should start with FDA reform. Congress should convert the FDA from an agency within the Department of Health and Human Services to an independent agency and also recommend that the president make FDA commissioner a cabinet-level position.

Further, Congress should require the FDA to appoint a “chief innovation officer” charged with reducing the cost and time required to bring new products to market.

One of the FDA’s first priorities should be to create an expedited approval process for drugs aimed at patients with certain “biomarkers” — biological indications of various conditions — since these drugs, by targeting specific subpopulations’ biochemistry, are much likelier to be effective than other medications.

Lowering the U.S. corporate tax rate to a competitive level — that is, the OECD average or lower — and eliminating taxes on profits earned abroad and reinvested at home would make building domestic research and manufacturing facilities much more attractive for American biotech firms.

Tort reform remains a long-overdue national priority. Meantime, Congress should create a drug compensation fund similar to the vaccine-injury compensation fund that has helped save that industry from junk-science lawsuits.

In such a system, people harmed by side effects disclosed on a drug’s label wouldn’t be able to sue drug companies; instead, they would receive a predetermined level of compensation from the fund for unforeseen but scientifically validated injuries, which would be paid for by a small excise tax on medicines.

Above all, lawmakers should abolish IPAB. A better way to reduce Medicare spending would be to cap it, encourage smarter use of that spending by raising participants’ out-of-pocket expenses and offer seniors the alternative of receiving a voucher to buy private insurance.

These reforms can help maintain American health-care leadership, control health-care spending, and create thousands of high-paying, high-skilled jobs. Alternatively, we can continue stifling this vital industry until it finds a home elsewhere.

Original Source:



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