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Manhattan Institute

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Making Medicine Affordable Is Simple

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Making Medicine Affordable Is Simple

Washington Examiner January 5, 2018
Health PolicyDrug Development

Many of the recommendations offered by the National Academies of Sciences, Engineering, and Medicine aim at increasing competition by regulating pharmaceutical companies even more in order to decrease drug prices. But a more effective way to lower drug prices is to change the system so it actually reflects free market principles.

The National Academies of Sciences, Engineering, and Medicine recently released a sweeping report, “Making Medicines Affordable: A National Imperative,” adding a new perspective to our national conversation about drug prices. Unfortunately, the recommendations made by this report fail to solve the drug pricing problem because they do not go far enough in addressing the lack of transparency and competition in the biopharmaceutical space.

In my mind, the solution is simple: Reintroduce true markets to pharmaceuticals, and many of the pricing and access problems will diminish significantly. This will not require any difficult maneuvering. We simply need to allow market forces to work as they do in the rest of our economy.

We do not need to jump through hoops to make medicines more affordable.

Imagine how quickly the middlemen would be eliminated if we had true price discovery, where you could open your phone and find the best price for your prescriptions online. There would be price competition for your business as well as a service parameter to your decision making. Pharmacies would have to compete for your business like everyone else, and prices for all prescriptions would decline.

Many of the recommendations offered in the report aim at increasing competition, but they do so by attempting to increase government regulation of the economy, which we must be careful to avoid. Yes, market forces are imperfect. But in the long run, they are better than any government market manipulation at bringing forth further innovation and lowering overall prices.

Giving more control to government will not make drugs more affordable or solve any of the problems at hand. Consider the report’s recommendation to implement value-based payment plans. I think this is an excellent idea, especially for the wave of gene therapies and other novel cures that are currently being developed. Pharmaceutical companies have been in favor of value-based pricing plans for a long time — the reason these plans have not be implemented thus far has been the interference of the federal government.

Regulatory barriers like Medicaid Best Price and Stark anti-kickback rules have prevented these companies from experimenting with value-based pricing and other innovative payment arrangements. With these roadblocks removed, pricing programs could be negotiated at the patient level and be truly based on outcomes, not regulation. Of course, they would include a safety net for those presently without coverage or access.

Unfortunately, this report goes even further in offering suggestions for government control with the attempt to limit tax deductibility of direct to consumer pharmaceutical advertising as a business expense. As a physician, I hate direct-to-consumer pharmaceutical advertisements, which are often attempts to sell people what they do not need. But the fact remains that these companies retain their First Amendment right to do so, whether we like it or not.

In addition to being illegal or unconstitutional, these recommendations simply obscure the real problem at hand. To implement them is to ignore our failure to create a true free market for drugs, and attempt to rectify this error with another error.

This brings me to my biggest problem with the report: All of the recommendations made are post hoc attempts to reform the market. If we simply mandated transparency and competition, these policies would not even be on the table.

To that end, I have three simple, straightforward recommendations to make medicines more affordable.

First, mandate that net prices of pharmaceuticals be made available both at the point of sale and in an easily accessible online database. This is the most important thing we can do to restore a free market for drugs. It will allow patients, not insurance companies or PBMs, to decide what is best for them, and let them shop for value. Once we empower patient choice, we will see an increase in competition and a decrease in prices.

Second, promote regulations that allow manufacturers to develop more cures faster, and at less total risk and cost. In addition to streamlining the approval processes for both branded and generic drugs, this means avoiding things like price controls, profit ceilings and other policies designed to prevent market forces from working.

Finally, address the regulations that impede the development of value-based pricing and other novel payment arrangements. Government agencies prohibit the development of new drugs and treatments in precision medicine because they do not allow flexibility on payment for value. Working together in free markets, patients, their physicians, and pharmaceutical companies will come together and find ways to deliver these new creative and curative therapies at a fraction of the expected cost.

We do not need to jump through hoops to make medicines more affordable. By changing the system to better reflect the free market principles that guide the rest of our economy, we can find ways to provide patients with effective medicines at reasonable prices, without breaking the bank or stifling further innovation.

This piece originally appeared at the Washington Examiner

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Dr. Tom Coburn is the Nick Ohnell Fellow at the Manhattan Institute and a former two-term U.S. Senator from Oklahoma.

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