Nancy Pelosi's Price Fixing Scheme Threatens Drug Innovation

Nancy Pelosi's Price Fixing Scheme Threatens Drug Innovation
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Addressing sky-high healthcare costs is a pressing need in our country, but the legislation making its way to the Senate isn’t the salve our system needs. The bill, titled the “Lower Drug Costs Now Act,” promises to squash lifesaving pharmaceutical innovation and, ultimately, cost lives as it would discourage investment in undeveloped and underdeveloped drugs.

“H. R. 3, the Lower Drug Costs Now Act of 2019, may share the Trump Administration’s first goal of lowering prices, but the threat it poses to continued medical innovation will harm American patients in ways that far outweigh any benefits,” reads a statement from the White House.

The legislation, which passed the House 230 to 192 last month,authorizes the Centers for Medicare and Medicaid Services to allegedly “negotiate” maximum drug prices with pharmaceutical companies. Far from negotiating drug prices, however, the bill would instead force drug companies’ hands by hitting them with costly sales taxes if they refuse to accept the prices laid out by the Health and Human Services secretary.

“Any company that refuses to negotiate would get slapped with a 65% excise tax on its annual gross sales that would escalate by 10% each quarter,” reports the Wall Street Journal editorial board. “The concept of negotiated drug prices has always been a political ruse because the government has outsize leverage to coerce manufacturers, so at least Mrs. Pelosi is transparent about the thuggery.”

As Peter Kolchinsky, founder and managing partner of pharmaceutical-investment firm RA Capital Management, says, “Drug companies that do not acquiesce to pricing demands from the Department of Health and Human Services would face punitive taxes until they came to heel.”

Such price-fixing fails to account for the gobs of money required to invest in research and development and fails to account for the capital costs needed to shepherd prescription drugs through U.S. Food and Drug Administration approval. According to a recent study published in the Journal of Health Economics, it costs drug-makers more than $2.6 billion to develop a drug that garners FDA approval.

“Drug development remains a costly undertaking despite ongoing efforts across the full spectrum of pharmaceutical and biotech companies to rein in growth,” says Joseph A. DiMasi, principal investigator of the study and director of economic analysis at Tufts Center for the Study of Drug Development.

The real cost of successfully getting a single prescription drug to market is bogged down by the expense of the myriad of drugs that end up on the cutting-room floor. In fact, findings show that only one of every 10 drugs that enter clinical development make it through marketing approval.

“Because the R&D process is marked by substantial technical risks, with expenditures incurred for many development projects that fail to result in a marketed product, our estimate links the costs of unsuccessful projects to those that are successful in obtaining marketing approval from regulatory authorities, DiMasi added.”

The Pelosi drug-pricing legislation would cripple pharmaceutical companies and cause them to stop taking risks that ultimately lead to greater production of innovative drugs that improve and save lives. It’s a consequence no American can afford—especially those in desperate need of new and effective prescription medicines.

An analysis by the White House Council of Economic Advisors concluded that, “H.R. 3 could lead to as many as 100 fewer drugs entering the United States market over the next decade, or about one-third of the total number of drugs expected to enter the market during that time  They added that the “economic value of this loss of new, better drugs, and the resulting  worse health outcomes, could reach $1 trillion per year over the next decade.”

Imagine if one of those drugs could improve the quality of a person’s life or add years a person might not otherwise have. The real cost of this legislation is far steeper than the Congressional Budget Office lets on, and members of the Senate should stop this bill in its tracks before it does irreparable damage to our pharmaceutical industry and the people whose lives are on the line.

Gerard Scimeca is an attorney and vice president of CASE, Consumer Action for a Strong Economy, a free-market consumer advocacy organization.

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