Price Controls and Compulsory Licensing Reduce Patient’s Healthcare Options

Contrary to repeated promises to end ‘foreign free-loading’ on U.S. investments in healthcare innovation, President Trump proposed last week that the United States adopt price controls for medicines that will effectively be dictated by foreign countries that care more about socialized healthcare than about the next generation of cures for unmet medical needs. This advance notice of proposed rulemaking, put forth by the Department of Health and Human Services, would apply to medicines covered under Medicare Part B which include some of the most advanced biotechnology breakthroughs. Under the proposal, the U.S. Medicare Part B prices of such medicines would be tied to the government-set procurement prices paid by foreign health care systems, such as those of Greece and Slovakia.

The Wall Street Journal Editorial Board succinctly expressed its opposition: “Mr. Trump is right that Europe, Australia and many others are freeloaders on U.S. innovation, and better intellectual property protections in trade deals might help. But that is no reason to repeat their price-control mistake and undermine the reasons the United States is the last, best hope for medical progress.”

To be fair, there is world-class biomedical research going on also in these other countries – but by a wide margin no nation invests as heavily in healthcare innovation as the United States. This explains why more new drugs originate in the U.S. than in the rest of the world combined, and why Americans have earlier access to more new breakthrough treatments than the citizens of other countries.

The concept of government price controls has existed on the fringe of the healthcare pricing debate for years. But the Congressional Budget Office repeatedly has said it won’t lower prices beyond what the competitive marketplace currently provides, unless the federal government also has leverage to simply not cover treatments when it deems their medical benefit not worth the expense. This would ultimately mean that bureaucrats and accountants, not doctors, would decide which patients receive which drugs, and which patients don’t. The administration’s latest proposal is an unsuccessful effort to end run around these flaws. Like similar preceding efforts, importing foreign “reference prices” will mean that we must also accept the limitations on access to treatment, and the lower, slower levels of medical innovation that are characteristic of these reference countries.

As BIO’s President and CEO, Jim Greenwood, separately opined in The Wall Street Journal this week: “Entrenched interests within the health-care system play politics when they conflate out-of-pocket costs for patients with drug costs paid by public and private payers. The cumulative effect of recent drug pricing announcements is that payers and other middlemen win. Patients who are hurting don’t get significant relief, while the investors and innovators who make the medicines get a gut punch.”

If that weren’t bad enough, Rep. Lloyd Doggett (D-TX) is pushing a legislative proposal that would require the government to compulsory license patents and expropriate trade secrets if a company won’t sell a drug to Medicare for the price the feds wants to pay. Where the Administration’s price restriction regime at least pretends to look for comparison only to modern OECD countries, Doggett’s Medicare Negotiation and Competitive Licensing Act of 2018 draws its inspiration directly from the practices of healthcare powerhouses like India, Malaysia and Thailand.

Once we go down a path of government price controls and compulsory licensing we will have foregone opportunities for other, more rational policy choices and will soon find ourselves in a race to the bottom. Of course, making prescription drugs more affordable must be an important, shared goal. But the solutions we pursue cannot risk choking off America’s innovative ecosystem that leads the world in discovering new cures and treatments. As Nobel laureate and NIH Director Harold Varmus said in 1995, one must first have a new drug to price before one can worry about how to price it.  Letting our federal government import foreign price controls and expropriate patents is not the way to go about it.