The Real Cost of Tying U.S. Drug Costs to the International Price Index

America and, indeed, the world is benefitting from vaccines that only could have been produced by a robust pharmaceutical industry built upon investment in research and development driven by the promise of profits from successful discoveries. 

President Trump’s genius was to unleash these companies from the binds of bureaucratic red tape to accelerate approvals while maintaining safety protocols. But ultimately, no amount of red tape could have been cut to bring pandemic-ending vaccines to market if the research part of the industry had been gutted by naïve price control measures that destroy the system’s ability to monetize new discoveries.

Profit is not a naughty word—it is a life-saving one. Without it, there would be little incentive to hire all those researchers who spend lifetimes looking to unlock medical puzzles to create treatments and cures.

Yet destroying any semblance of profit is exactly what House Speaker Nancy Pelosi (D-Calif.) is attempting to do through her ill-conceived HR 3.

Most people don’t realize that a 2011 Milken Institute study showed that the United States invents just shy of 60 percent of drugs being used worldwide. This innovation is directly related to the market-based system—free from proscriptive, artificial pricing models—which encourages investment. 

HR 3 would destroy future discovery of cures and treatments in multiple ways. One of these is the adoption of the International Price Index (IPI), tying U.S. drug prices to those paid by the volume-weighted average price in six countries—Australia, Canada, France, Germany, Japan, and the United Kingdom. 

Many of these countries have socialized medicine systems where bureaucrats dictate drug prices without regard to costs or other variables. The result is that the citizens of many of these countries do not benefit from the latest life-saving medicines. 

The proof is that between 2011 and 2018 there were 290 new medicines introduced worldwide, of which 89 percent were available in the United States, whereas only 60 percent were available in Great Britain, 50 percent in Japan, and 44 percent in Canada. 

Incredibly, HR 3 would lock in IPI through legislation, disconnecting any market reality from the price of medicines United States consumers would pay, leaving Americans to pay a much worse price as new medicines are simply not developed or brought to market.

Instead, the answer to the pricing differential between the U.S. consumers and those in countries who are shifting drug research cost burdens onto Americans is using trade negotiations to jawbone those countries to embrace a market-based system by ending IPI. This would have the virtuous effect of increasing the value of research while accelerating the development of new medicines and lowering costs to U.S. consumers.

Yet, Pelosi’s HR 3 does just the opposite and has an even more pernicious side effect for people with disabilities. A 2020 statement from the National Council on Disabilities warned about the negative impacts of adopting the IPI model, saying,

Importation of the IPI in the U.S. will restrict access to prescription medications for the millions of Americans who rely on Medicare Part B due to the IPI’s reliance on quality-adjusted life years (QALYs)—a formula used to assess the value of medications by assigning a lower value to the life of a person with an illness or disability.

To date, QALYs have been deemed contrary to U.S. public policy because of the discriminatory design and impact on people with chronic illnesses and disabilities. NCD’s 2019 report on QALYs describes their consequences on people with chronic illnesses and disabilities in countries with government-run health systems that use the IPI. Where Americans enjoy broad access to the most effective and cutting-edge medications available, people in IPI countries have dramatically less access to important drugs, including denied or restricted access to the most effective drugs for cancer and other serious medical conditions.

HR 3 would legislatively enact the heart of the IPI system, which is dependent upon rationing drug availability to people with chronic illnesses and disabilities. Enacting this pricing model inevitably will lead to the same rationing here in America.

There is no argument that developing new medicines is costly with an average cost of $2.9 billion to bring a new drug to market. The question is simply whether Americans will stand for the squelching of new medicine development through passage of HR 3, or not?

After witnessing the miracle of innovation through the rapid, safe introduction of the Trump COVID vaccines, now is not the time to destroy the very capability that has saved millions of lives around the world during the COVID-19 pandemic.

 

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