To control escalating U.S. drug prices that seem to be disconnected from research, development, and manufacturing costs, an array of politicians, policy wonks, and pundits have proposed a spectrum of government interventions. The Senate Special Committee on Aging is the latest to weigh in, with a report that makes various recommendations.
Characteristically, it focuses on high-profile abuses and proposes only tepid measures to “rein in price spikes in off-patent, decades-old drugs purchased by companies that did not bear the drugs’ research and development costs.”
The report urged, for example, that the Food and Drug Administration be given expanded authority to allow imports of medicines from countries with drug-safety standards similar to those in the United States, but only in narrowly defined circumstances, such as when consumers face sharp, sudden increases in the price of off-patent drugs that have no competition. (Regulators already have the ability to allow imports when there are acute critical shortages of approved drugs in this country.) But the Senate recommendations would require the imports to end “as soon as the monopoly was broken up.”
There is certainly sympathy from the incoming administration for reform of drug regulation. President Trump pledged during the campaign to “remove barriers to entry” of “imported safe and dependable drugs from overseas,” and he told Time magazine after the election: “I’m going to bring down drug prices. I don’t like what’s happened with drug prices.”
That’s a widely shared sentiment, but pharmaceutical pricing is neither simple nor transparent, not only because of global and national competition, but also because of inconsistent national laws, individual company practices, industry-wide insurance-company discounts, and government rules that require preferential pricing, rebates, and discounts. American politicians often cite foreign countries’ approaches to controlling prices, but their very different market and reimbursement systems make it difficult to judge the extent to which they are applicable to the United States.
Foreign governments’ cost savings arise from price controls and refusal to pay for drugs that do not show sufficient medical benefit to justify the cost. This sort of technology assessment is not done routinely in the United States. “If it’s an FDA-approved drug and prescribed by a duly licensed physician, Medicare will cover it,” notes Gail Wilensky, who ran U.S. Medicare and Medicaid reimbursement in the 1990s. Non-government insurers also often (but not always) cover approved drugs and medical devices.
Government-imposed price controls on a wide variety of goods have an extensive and unhappy history in the United States. At various times the federal government, states, and even localities have imposed price controls on items such as oil, electricity, apartment rents, food, and plane fares, but the benefits tend to be short-term at best, with unintended consequences including consumer dissatisfaction from shortages and curtailed industrial production, investment, and innovation.