Freedom Line Blog

In this week’s Liberty Update, we highlight how cheap slurs against “Big Pharma” have suddenly and rightfully fallen silent amid the coronavirus pandemic, as people understand that private pharmaceutical innovators offer the best hope for new vaccines and treatments.  Along with strong patent protections, one of the key components in unleashing America’s pharmaceutical innovators – who lead the world by producing an astounding two-thirds of new medicines worldwide – is an emphasis on free-market principles, as opposed to socialized models that stifle innovation and prevent new drugs from reaching even developed nations’ consumers.  Our friends at the Heritage Foundation offer a nice illustration of that correlation:

Freedom Means Innovation

.

CFIF has joined a broad coalition of fellow conservative and libertarian free-market organizations in opposing any proposed “Buy American” mandates on medicines, because they would place unnecessary sourcing requirements upon medicines and medical imputs purchased with federal dollars.  That is the last thing that Americans need at the moment, not least because it doesn’t single out China in the way that some falsely assume, and the just-released coalition letter is worth reading in its entirety here.

In that vein, however, this image helpfully illustrates some of the logic behind the letter:

The Peril of a “Buy American” Order

Continuing our theme of highlighting pharmaceutical innovators and innovation in a moment like this,  from Fulton County, Georgia:

The Promise of Pharmaceutical Innovation

In our Liberty Update this week, we emphasize the critical role that strong patent rights play in U.S. pharmaceutical innovation.  Although the U.S. accounts for just 4% of the world’s population and 24% of the global economy, we account for an astonishing 2/3 of new drugs introduced worldwide, as this helpful image illustrates perfectly:

Patent Rights = Global Pharmaceutical Innovation Leadership

Strong patent protections, along with our more market-oriented approach, have made America the world leader in pharmaceutical innovation.  At a moment like this amid the coronavirus pandemic, it’s more important than ever to protect that legacy and oppose misguided efforts by some in Congress to undermine it.

In the ongoing debate over healthcare reform, it’s important to keep our collective eye on the ball.  In that vein, as CFIF has repeatedly emphasized, we must ensure that free market principles prevail, and that includes protecting patent rights rather than weakening them.  Otherwise, American consumers will pay the price in fewer pharmaceutical innovations, shortages and worse health outcomes.

After all, as we’ve often pointed out, it’s not by accident that the United States accounts for an astonishing two-thirds of all new pharmaceuticals in the world.  That reflects the fact that we lead the world in intellectual property (IP) protections and avoid the destructive price controls that nations favoring socialized medicine impose.  As a consequence, patients in those countries don’t receive the new lifesaving and life-enhancing drugs that we do.

Unfortunately, there’s bad news to report in that regard, as Representative David Cicilline (D – Rhode Island) has introduced the misnamed “Affordable Prescriptions for Patients Through Promoting Competition Act.”  Most conspicuously, his proposal would begin prohibiting patent protections for pharmaceutical innovators developing improvements to their existing products.

Here’s why this is important.  Existing laws that have made us the most innovative nation in history allow for patent protection for new and useful improvements to existing pharmaceuticals.  Such improvements can help patients in such ways as eliminating side effects, reducing the necessary frequency or dosage, enhancing potency, boosting effectiveness or even addressing other illnesses beyond the drug’s original purpose.

But if innovators can no longer expect patent protections for the billions of dollars and years of hard work invested in developing them, then those innovations will begin to dry up.  Developing new or improved drugs typically requires over 10 years, and only approximately 10% of new discoveries actually make it to market after regulatory approval.  Accordingly, we must enhance the prospect that the fruits of innovators’ labors will be obtainable, not diminish them.

Representative Cicilline’s proposed bill is therefore a potentially catastrophic one for American consumers, who rely upon pharmaceutical innovators more and more to save lives and maintain health.  We therefore call upon all Members of Congress to oppose it.

Yesterday, the Trump Administration through the Department of Health and Human Services (HHS) inexplicably introduced a proposal to begin drug importation from other countries.

Currently, Americans enjoy the safest medicine market in the entire world under the system monitored by the U.S. Food and Drug Administration (FDA).  According to FDA estimates, over 99% of drugs making their way into the U.S. via international mail failed to comply with its standards, and the United Nations World Health Organization estimates that fully 10% of all medicines worldwide are actually counterfeit.  That’s an enormous and unacceptable threat.

It’s therefore no surprise that a bipartisan array of experts and officials, including Trump Administration officials, have long panned the drug importation idea.  Just last year, for instance, HHS Secretary Alex Azar labeled drug importation a “gimmick,” emphasizing that, “the last thing we need is open borders for unsafe drugs.”  Recent FDA Commissioner similarly lambasted the idea and detailed the numerous threats that it entails.  A collection of FDA Commissioners spanning the years 2002 through 2016 went so far as to write an open letter to Congress in 2017, explaining how drug importation, “could lead to a host of unintended consequences and undesirable effects, including serious harm stemming from the use of adulterated, substandard or counterfeit drugs.”

Safety concerns, however, aren’t the only problem with the drug importation idea.  The Congressional Budget Office (CBO) has studied the issue and concluded that drug importation would have little to no impact on actually lowering prices.  Former FDA Commissioner Gottleib concurred that the plan “would have added so much cost to the imported drugs; they wouldn’t be much cheaper than drugs sold inside our closed American system.”  Part of the problem, according to a Canadian Pharmacists Association (CPhA) statement released just yesterday, is that Canada’s market couldn’t handle the sudden onslaught of American demand, and importation would crash their market on which the U.S. drug importation plan would rely.

Additionally, as we at CFIF have long emphasized, importing other nations’ pharmaceutical policies and pricing would reduce drug innovation and availability to American consumers.  Even highly developed nations enjoy far fewer new life-saving and life-improving pharmaceuticals than the U.S., which should trigger alarm for every American.

This constitutes a rare unforced error, as drug importation violates free market principles, in addition to the fact that imported drugs meet neither safety nor dependability standards.

How else can we be certain that this is a terrible idea?  Socialist Senator Bernie Sanders (D – Vermont) advocates it.  That says all we need to know.

In ongoing negotiations, it’s reported that some are proposing to employ destructive drug price controls as a mechanism to reach a budget agreement.  For multiple reasons that CFIF has highlighted, that poses a potentially catastrophic idea.

Specifically, it appears that debt ceiling negotiations may include a destructive proposal to reduce federal spending levels by targeting $115 billion from Medicare, which would derive largely from alleged “Medicare savings” through instituting a government-imposed mandatory “inflation rebates.”  As we’ve explained, inflation rebate proposals work by penalizing drug innovators with higher taxes whenever their products exceed an arbitrary inflation mark.  Currently, Medicare Part D’s structure works by employing market-based competition to mitigate drug costs via privately-negotiated rebates, meaning that no specific “price” reliably represents that drug’s underlying price.  Accordingly, the proposal would inherently undermine privately-negotiated Part D plan rebates, which the Congressional Budget Office (CBO) has said “appear to make the net prices approach the lowest prices obtained in the private sector.”  Indeed, as the Altarum Institute has highlighted, those Part D plans currently achieve greater brand medicine rebates than private insurers.

Critically, it must also be noted that inflation rebate proposals would violate non-interference clauses that facilitate competition among Part D plans, which provide a critical part of Part D’s success in mitigating costs since its inception.  They would also arbitrarily apply to new pharmaceuticals while bypassing generic brands, which now constitute approximately 90% of Part D prescriptions.  The proposal would also inescapably weaken incentives on the part of Part D plan sponsors to negotiate with drug manufacturers and minimize drug spending under a regime of statutorily-imposed rebates, thereby setting a negative precedent for those sponsors.  It also bears emphasis that private-sector limits on drug cost increases already exist via “price protection rebates” that Pharmacy Benefit Managers (PBMs) negotiate with manufacturers.

Accordingly, imposing price controls in Medicare Part D would fundamentally undermine its entire market-based model, which would in turn reduce research and development and slow progress toward new and improved medicines.

Adding insult to injury, such a proposal would constitute a raid on Medicare for the benefit of other government spending pork.  During this era of budgetary waste, the last thing that Congress should consider doing is sacrificing Medicare, particularly when affordability and access to pharmaceutical innovations remains such a top public priority.  Budgetary discipline and access to medicines remains a priority of the highest order, but market-oriented solutions, not destructive gimmicks, offer the optimal solution.  Any proposal to target Medicare Part D for mandatory inflation rebates has not been subjected to full review, committee research, hearings or debate.

American citizens, particularly seniors, should not be subjected to that danger.

On behalf of over 300,000 of our supporters and activists across the nation, CFIF has written the following letter opposing any use of Mandatory Inflation Rebate Proposals when it comes to the issue of addressing drug prices:

We believe that market-oriented solutions offer the optimal solution, and resolutely oppose any use of mandatory inflation rebate proposals – which would unfairly penalize a drug’s manufacturer with higher taxes whenever that drug’s price rises faster than inflation – that will make matters worse, not better. Among other defects, such a government-imposed penalty would undermine Medicare Part D’s current structure, which uses market-based competition to mitigate drug costs. Part D currently works via privately-negotiated rebates, meaning that no specific price reliably represents a drug’s underlying price. Accordingly, the proposal would inherently undermine privately-negotiated Part D plan rebates, which the Congressional Budget Office (CBO) has said “appear to make the net prices approach the lowest prices obtained in the private sector.” Indeed, as the Altarum Institute has highlighted, those Part D plans currently achieve greater brand medicine rebates than private insurers.

Additionally, inflation rebate proposals would violate non-interference clauses that facilitate competition among Part D plans, which provide a critical part of Part D’s success in mitigating costs since its inception. They would also arbitrarily apply to new pharmaceuticals while bypassing generic brands, which now constitute approximately 90% of Part D prescriptions. The proposal would also inescapably weaken incentives on the part of Part D plan sponsors to negotiate with drug manufacturers and minimize drug spending under a regime of statutorily-imposed rebates, thereby setting a negative precedent for those sponsors. It also bears emphasis that private-sector limits on drug cost increases already exist via “price protection rebates” that Pharmacy Benefit Managers (PBMs) negotiate with manufacturers.”

The issue of reducing drug prices remains an important one, but it’s just as important that we pursue policies that make the situation better, not those that would make the situation far worse.

In an excellent piece in today’s Wall Street Journal, Scott Atlas of Stanford University highlights how Americans enjoy far greater access to new lifesaving drugs than patients in Europe and elsewhere, and how the movement to impose government price controls would only restrict access to new drugs and degrade Americans’ health outcomes, as we at CFIF have been emphasizing:

America has superior treatment results for virtually all serious diseases reliant on drug treatment, including cancer, heart disease, stroke, high blood pressure and diabetes.  Price controls would jeopardize that advantage…

Pegging drug prices to those of foreign countries, as both Bernie Sanders and Donald Trump have proposed, would ultimately lead to the same consequences Europeans endure – reduced access to critical drugs and worse outcomes, including more deaths from disease.”

Mr. Atlas also notes how the Trump Administration has taken positive steps toward actually reducing drug prices, by targeting rebates received by pharmacy-benefit managers (PBMs) from drug manufacturers:

The Trump Administration has announced a proposal to do away with rebates paid by drug manufacturers to pharmacy-benefit managers, replacing them with discounts to beneficiaries at the point of sale.  PBMs are middlemen that control ‘formularies,’ the lists of drugs covered by a plan.  Rebates from drug companies to PBMs are payments for influence – either to position a drug on the formulary as ‘exclusive’ or to give it preferred status over competitors.

PBMs act counter to patient interest while aggravating the lack of price transparency.   These complex behind-the-scenes payments – $179 billion in 2016 – reward inflated list prices, on which patient premiums are often based.  This prevents patients from taking account of price…  Go-betweens like PBMs should be eliminated.”

Finally, and just as critically, Mr. Atlas adds that weakening patent and intellectual property (IP) rights would constitute a particularly destructive course:

Drugs are the most significant reason for the past half-century’s unprecedented gains against deadly disease.  But policies that aim to reduce drug prices – price regulation and weaker patent protection – are also associated with delayed availability, less innovation, and limited access.”

Mr. Atlas delves into statistics showing the enormous advantage that Americans enjoy in terms of new drugs and health outcomes, and his piece is well worth the full read.  Hopefully policymakers at all levels of government are listening.

We at CFIF have been emphasizing the threat posed by new drug price controls inexplicably contemplated by the Department of Health and Human Services (HHS).  In December, CFIF filed formal Comment opposing that ill-advised proposal, and hopefully wiser minds will prevail before the damage is done.  In similar vein, The Wall Street Journal ran a welcome commentary entitled “The Drug Price-Control Threat” on January 8 of this year, and a followup letter from reader Bruce Zessar of Highland Park, Illinois in today’s edition offers a personal, real-world illustration of what could be lost:

Insulin isn’t the same now as when it was discovered a century ago.  My wife is a Type I diabetic, diagnosed when she was 14 in 1980.  She has been a beneficiary of the tremendous advances in insulin therapy during the last four decades, including Lantus and Humalog.  When we got married in 1990, she had to live on a rigid schedule, eating lunch at, say, noon, and then dinner by 6:30-7:00 every day.  That’s becaue of the way prior insulin therapies worked in managing blood sugar.  With the invention of Lantus and Humalog, she can now live a normal life like everyone else.

Insulin is a shining example of why drugs deserve the utmost patent protection to encourage continual innovation.”

Price controls have never worked in any nation that has tried them, or with any commodity.   Few, if any, products are as important to our lives as America’s world-leading pharmaceutical sector, and we mustn’t let the price control scheme contemplated by the HHS kill the goose that continues to lay golden eggs.

In our recent weekly Liberty Update commentary entitled “On Pharmaceuticals, HHS Contemplates Disastrous New Price Controls,” we explain how government price controls undermine intellectual property (IP) rights, stifle American innovation and ultimately punish consumers in the form of fewer new pharmaceuticals.  We therefore encourage the Trump Administration to rethink a toxic new proposal along those lines, and instead pursue a course more in accord with its generally excellent stewardship of our economy and markets to date.

In his latest weekly commentary entitled “Not Healthy to Be Naive,” John Stossel agrees, and in a nice blurb explains the real-world consequences of drug price controls:

[G]overnment-run systems save money by freeloading off American innovation.  American drug companies, funded by American customers, fund most of the world’s research and development of pharmaceuticals.  New drugs and devices are expensive, so sometimes in Britain, says Pope, ‘whenever a new drug comes on the market that can save lives, the government just doesn’t have the funds to pay for it.’

Patients, accustomed to accepting whatever government hands out, don’t even know about the advances available elsewhere.  Single-payer systems also save money by rationing care.  Hence the long waiting times for treatments declared ‘nonessential’ in Canada, Britain and, for that matter, at American veterans hospitals.”

Hopefully, the Trump Administration is listening and corrects course.

Healthcare costs, including pharmaceutical costs, remain a legitimate concern.  But the Trump Administration Department of Health and Human Services (HHS) is about to commit a needless unforced error.

The issue in question is an effort to force pharmaceutical companies to announce “list price” of drugs that they advertise.

A similar effort was recently introduced as legislation in Congress by Senator Dick Durbin (D – Illinois), which is itself proof of the wrongfulness of the idea.  A coalition of conservative and libertarian voices, including CFIF, stopped Senator Durbin’s effort.  But for some reason the HHS announced intent to impose the mandate via regulation, reminiscent of Barack Obama’s “pen and phone” manner of presiding.

Here’s why this is a terrible idea.

First, a drug’s “list price” is more likely to confuse consumers than enlighten them.  The reason is that what consumers actually pay for a drug is almost always very different, and much lower, than its list price.  Most patients’ drugs are subsidized by co-pays or co-insurance programs, whether via Medicare, Medicaid or insurance companies.  Insurance companies themselves typically don’t even pay the full list price, since they also receive various rebates and discounts from pharmaceutical sellers.  Overall, approximately 9 out of 10 consumers pay below the technical list price.  Consequently, compelling advertisers to state the list price in ads would mislead consumers into assuming that their out-of-pocket cost would be higher than they price they’d actually pay.

That hardly advances the goal of informing consumers.

An even more fundamental problem with the contemplated HHS mandate is that it would violate the First Amendment by compelling speech.

Under First Amendment free speech application, including commercial speech, courts strictly scrutinize any effort by government to force private citizens or entities to what it wants them to say.  Only where the compelled speech is purely factual and non-controversial will allow exceptions to the general prohibition against compulsory words.  As noted above, a drug’s list price doesn’t qualify as purely factual for purposes of informing consumers, because consumers rarely pay that price.  Nor does the HHS proposal qualify as non-controversial, for obvious reasons.

Accordingly, a government attempt to force advertisers to state prices that are higher than what almost all consumers actually pay can’t withstand First Amendment scrutiny, and will be struck down when challenged in court.

Finally, the HHS doesn’t even possess authority to impose this proposed mandate.  That authority under Congressional statute instead lies with the Food and Drug Administration (FDA).  Proponents of the HHS mandate assert that the Social Security Act provides a loophole to force this proposal upon the pharmaceutical market, but that too won’t withstand court scrutiny.

For all of these reasons, the HHS proposal to engage in compulsory speech, speech that isn’t even accurate or informative, is a head-scratcher.  Hopefully it will reconsider this ill-advised effort sooner rather than later, and pursue more effective ways of reducing pharmaceutical and healthcare costs.

America’s pharmaceutical innovators lead the world, saving and improving people’s lives on a daily basis.  But relentless efforts to move toward a single-payer system and impose destructive price controls threaten our continuing progress.

Drug maker Biogen recently announced exciting results of a clinical trial for a new drug to treat Alzheimer’s disease. Yet, despite the promise that this could be a breakthrough that gets us closer to a cure, the medical community and families with loved ones suffering from the disease are holding their collective breath.

Why? Because we’ve been down this road before.

Alzheimer’s is one of the most complex and pernicious medical conditions that we face, with no known cure and an immense emotional and economic toll. Worse, the rate of diagnosis is increasing and estimates suggest the cost of the disease has already surpassed $259 billion.  According to one Alzheimer’s Association spokesperson, it will “bankrupt Medicare.” By 2050, the cost of care for Alzheimer’s patients could exceed $1 trillion annually.

That is a crisis medical professionals are rushing to solve, but progress has been slow. An estimated 99.6 percent of Alzheimer’s drug “candidates” (i.e. experimental drugs designed to treat Alzheimer’s) fail.

In 2018 alone, high profile failures in Phase 3 clinical trials from drug makers like Eli Lilly and Merck represent decades of work and hundreds of millions of dollars in research yielding little to no results. Even Biogen’s announcement, as promising as it is, has only a 50 percent chance of gaining FDA approval, according to analysts.

The issue of high drug prices is real, but too often the public doesn’t understand the immense risk – and cost – pharmaceutical companies take on to research and develop new treatments for devastating diseases like Alzheimer’s. While everyone hopes Biogen’s new drug is a success, many drugs – including many recent potential treatments for Alzheimer’s – never make it through the clinical trials to market. What’s worse, the lack of transparency in our health care payment system drives costs up even further.

Drug makers invest hundreds of millions of dollars and more into developing new treatments and cures, with no guarantees their research and development will yield results.  That risk must be protected to ensure the continued motivation to strive for better treatments and new cures.

Efforts to cap prices and leverage government buying power via a single-payer system threaten to curtail research and delay or eliminate future cures. It’s a gamble that the United States cannot make, both for our own health and for future generations.

Yesterday brought good news in the form of Senate confirmation of Trump nominee Scott Gottlieb as Commissioner of the Food and Drug Administration.  In addition to favoring quicker pharmaceutical review and approval, as well as “free-market strategies to bring down drug costs,” The Wall Street Journal notes that Gottlieb brings a healthy skepticism of the ill-advised and potentially dangerous proposal to import drugs from Canada and other countries:

He has also questioned the wisdom of allowing U.S. consumers to import brand-name drugs from countries like Canada, where they cost less, in part because of safety concerns.”

Mr. Gottlieb’s view accords with the opinion of all four of the most recent FDC commissioners, who warned in a recent letter to Congress that suddenly allowing drug importation from Canada or other unsecure countries “is a risky approach that would endanger consumers by exposing them to fake, substandard and contaminated drugs”:

[G]lobal experience confirms that illicit, ineffective, or adulterated products are readily available on the open market and represent one of the most lucrative avenues of organized crime…  Obtaining sufficient resources and expertise to screen and verify the authenticity of every product destined for American consumers presents enormous challenges.”

That also accords with the view of former federal judge and Clinton and Bush FBI Director Louis Freeh, writing in The Philadelphia Inquirer:

Allowing citizens to purchase medicine direct from foreign countries will mean more risk to consumers from counterfeit drugs, more opportunity for criminal activity in the marketplace, and more stresses placed on overstressed law enforcement efforts to combat this problem.  The belief that U.S. consumers can gain access to safe and low-cost medicines from Canadian and European drug markets without an offsetting cost to consumer confidence and law enforcement is not realistic.  Quite the contrary, drug counterfeiting is a global threat that we’re inviting upon ourselves if Congress allows this idea to move forward.”

Drug importation is a deceptive and dangerous idea, particularly in a period of increasing opioid addiction across the country, and Congress shouldn’t make the country more perilous by pushing it.

Reasonable people understand that nations more protective of property rights and the rule of law enjoy higher levels of innovation and prosperity.  The fields of pharmaceutical advancement and biomedical innovation more specifically are no exception.

In a cogent new piece, U.S. Chamber of Commerce Executive Director of Intellectual Property Policy Patrick Kilbride demonstrates how strong intellectual property (IP) protections fuel biomedical innovation that benefits the world:

[E]conomies with the strongest IP protections are 60 percent more likely to provide environments conducive to biotech innovation.  And economies with specific protections for the life sciences field see an average of 13 times more biomedical investment than those lacking IP protections…  [A]s intellectual property systems have strengthened over time, public and private investment in health care has increased, as well as individual earnings to support heath costs.”  (emphasis in original)

Why does that matter?  Because international and even domestic forces seek to  undermine IP protections, threatening the goose that continues to lay golden eggs:

We live in a world where concerted efforts are being made daily to erode intellectual property rights, based on the false premise that IP somehow threatens access to medical care.  While the facts simply don’t support this theory, it hasn’t stopped activists around the world from spreading misinformation and chipping away at the very IP protections that produced life-saving medicines in the first place.  Just a few short years ago, India stripped a leukemia drug of its patent, claiming that it inhibited access by its citizens.  The result?  Due to government interference, fewer Indian citizens had affordable access to this medication than before the patent was annulled.  In Canada, an overzealous judiciary revoked 25 previously granted pharmaceutical patents and sparked a case involving NAFTA protections that could do lasting harm to future investments in life-saving medicines.  And Colombia’s prime minister of health has repaid medical researchers scrambling to find a cure for the Zika epidemic by pursuing an arbitrary and dangerous attack on others in the industry, effectively stripping a pharmaceutical company of its patent for another drug.  It is also against this backdrop that the United Nations Secretary General has pressed for establishment of a High-Level Panel on Access to Medicines (HLP) to quickly produce a report, based on the same false premise:  that ‘failure to reduce the costs of patented medicines is resulting in millions of people being denied access to lifesaving treatments.'”

As Abraham Lincoln observed, “The patent system added the fuel of interest to the fire of genius.”  It’s incumbent upon us to safeguard IP protections that continue to fire the genius of medical innovation.  Too many lives are at stake across the world to allow the grim alternative.

Maligning pharmaceutical enterprises is a curious perennial dance, one that becomes even more active during presidential campaign seasons.  That always struck me as odd, since it seems a sign of societal advance that we can complain about the price of something that saves lives and improves living conditions rather than lamenting its nonexistence.

Regardless, the U.S. Chamber of Commerce’s Global Intellectual Property Center (GIPC) offers an instructive corrective entitled “4 Charts Explain the Economics of Drug Development.”  It is worth the brief examination and passing on to others, because it helps rebut many of the politicized myths that threaten the goose that lays the golden eggs:

“It’s not just the science that goes in to developing medicines that’s complicated.  The economics that drive the industry, allowing resources to be available so people can have access to beneficial new medicines is complicated, too.”

Each chart is worth 1,000 words, but the four broad takeaways are:  (1)  It takes ten years and $2.6 billion to bring a single drug to market;  (2)  In 2014, pharmaceutical companies spent $51.2 billion on research & development;  (3)  Only a few drugs, however, become commercial successes;  and (4)  The end result is that pharmaceuticals’ enormous investments result in people living longer and better lives.

Something to keep in mind as sometimes silly presidential campaigns get even sillier, at least in terms of maligning the innovative pharmaceutical industry.