Price controls on drugs may reduce some short-term healthcare costs for consumers, but will also reduce the innovation that brings us more cures, less pain, and fewer side effects. If we want to both reduce costs for consumers and increase innovation, we should end government mandates for the Phase 3 clinical trials–the phase of clinical trials that make up most of the cost of gaining regulatory approval.
(p. A19) The Biden White House has proposed requiring Medicare to “negotiate” drug prices.
. . .
Unfortunately, the debate is being informed by erroneous Congressional Budget Office analysis. CBO says . . . the supply of new drugs will only be reduced by 5% from 2021 to 2039, a loss of only two drugs a year.
The CBO minimizes the harmful effects on innovation, but the entire supply chain that funds medical R&D relies on rate-of-return assessments driven by future earnings. An analysis I released this week finds 10 times the effect on R&D, a loss of up to some 340 drugs over the same period.
The White House also claims that price controls won’t hamstring innovation because they only govern top-selling drugs. But the occasional blockbuster funds the roughly 90% of pipeline drugs that never pass Food and Drug Administration review. CBO even acknowledges that only the top 7% of Medicare drugs drive U.S. profits. Targeting financially successful drugs could make large segments of the development portfolio unprofitable, even if such drugs aren’t affected by price controls.
For the full commentary see:
(Note: ellipses added.)
(Note: the online version of the commentary has the date September 15, 2021 [sic], and has the same title as the print version.)
The research brief co-authored by Philipson and mentioned above is:
Supporting Philipson’s argument is a 2024 working paper showing that Medicare-mandated price cuts in medical equipment has resulted in less innovation in medical equipment: