We at CFIF often highlight the clear and present danger that drug price control schemes pose to American…
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New Lung Cancer Breakthrough Illustrates the Potential Peril of Drug Price Controls

We at CFIF often highlight the clear and present danger that drug price control schemes pose to American consumers, who benefit from our private pharmaceutical sector that leads the world - by far - in innovation.  A new lung cancer treatment breakthrough in the form of Amgen's Lumakras illustrates that interrelationship.

Simply put, Lumakras reduced the risk of progression by 34% compared to chemotherapy in patents with advanced lung cancer, which is particularly welcome considering lung cancer's especially low survival rate (18.6% over five years, and just 5% for advanced forms).  The breakthrough required years of research and enormous amounts of investment, however, which The Wall Street Journal notes makes Lumakras the type of innovation put at risk by new drug price controls…[more]

September 22, 2022 • 05:06 PM

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Healthcare: Beware Price Controls and Weaker Patent Protections Print
By Timothy H. Lee
Thursday, June 06 2019
America became the most inventive and prosperous nation in human history by protecting IP rights, including patent rights, and by elevating free market principles over government control, not by maximizing government control or undermining property rights.

As debate over healthcare policy accelerates, a small number of otherwise conservative and libertarian voices who should know better have begun floating destructive proposals that would only make matters worse. 

As an initial matter, it’s worth highlighting an encouraging recent Gallup survey that may surprise some.  Namely, a remarkable 80% of Americans rate their own healthcare as “excellent” or “good.” 

Accordingly, policy makers should approach this debate with the understanding that proposals that would upset the proverbial apple cart and impose dramatic changes to health policy could suffer a backlash of unpopularity.  Although many claim that we must “do something” about healthcare, doing something that makes matters worse, which is highly likely given overwhelming satisfaction with current healthcare, must be avoided. 

In that regard, two particular proposals must unequivocally be avoided:  (1) foolishly importing other nations’ price control regimes, and (2) weakening patent rights for pharmaceutical innovators. 

On the first point, suggestions that the United States impose de facto drug price controls favored by other nations has achieved inexplicable favor among a small number of right-of-center voices, and the Department of Health and Human Services (HHS) recently proposed a system of reimbursing drug costs that derives from an index aggregating prices paid in over a dozen foreign nations such as France, Greece, Germany and Italy. 

In other words, instead of exporting American free market principles to other nations needing more of them, the proposal would import other nations’ price controls that we do not need. As with all other attempts at government price controls, that would inevitably lead to less innovation, lower supply and rationing. 

Recent data justifies that concern. 

Of 290 new active pharmaceuticals that became available between the years 2011 and 2018, approximately 90% are available in the U.S.  In contrast, consumers in the nations that would constitute the pricing index contemplated by the HHS can only access between 29% and 62% of those new drugs.  The obvious lesson is that price controls create artificial shortages, in this case of critical new drugs that save and improve people’s lives.  That’s a scenario we obviously mustn’t invite. 

Some otherwise conservative or libertarian voices who curiously favor importing other nations’ price systems have responded by simply altering the list of nations they’d use to create the drug price index to countries that they claim constitute more free market systems.  Even in those nations, however, the percentage of new drugs available to consumers changes very little, and artificial price controls remain common, as highlighted cogently in a recent analysis by Doug Badger of the Galen Institute. 

The bottom line is that the “price control lite” pricing mechanisms advocated by some right-of-center voices differ little from other iterations of the idea. 

Even worse, some who advocate importation of price controls also advocate policies even more potentially destructive:  weakening American patent protections that incentivize new drug innovations. 

Throughout our history, the U.S. has maintained the world’s strongest protections for intellectual property (IP) – patents, copyrights, trademarks and trade secrets.  Not only did our Founding Fathers explicitly protect IP in the text of Article I of the Constitution, but year after year we maintain the top position in worldwide rankings of IP protection.  As a result, no nation in human history approaches our legacy of scientific, artistic and commercial innovation.   

That includes patents for pharmaceutical innovations. 

To illustrate, in recent years the U.S. has accounted for approximately two-thirds of new lifesaving and life-improving drugs introduced to the world.  The next closest competitor is Japan at a comparatively tiny 12%, with all of Europe accounting for approximately 10%. 

That’s a direct reflection of America’s strong tradition of patent protections.  Other nations don’t enjoy the innovations that overwhelmingly occur in the U.S. because there’s less assurance that investments of time and money will be rewarded.  As in all other areas of economic activity, property rights create an invaluable incentive to invest and innovate.  Not to mention the fact that depriving innovators of the fruits of their labor constitutes an injustice that our Founding Fathers sought to avoid.  As Abraham Lincoln observed, America’s patent system “added the fuel of interest to the fire of genius.” 

Even the World Health Organization (WHO), hardly a stronghold of free market thought, warned that pharmaceutical price controls and weakening patents suffocate innovation: 

Every time one country demands a lower price, it leads to a lower price reference used by other countries.  Such price controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing those policies. 

Fortunately, a better alternative exists.  America became the most inventive and prosperous nation in human history by protecting IP rights, including patent rights, and by elevating free market principles over government control, not by maximizing government control or undermining property rights.  The healthcare industry is no different, and Americans should beware calls to stray from that course that has served us so well. 

Especially when those calls come from otherwise conservative and libertarian minds that know better. 

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