The Democratic primaries may be contentious, but both candidates agree on one point: government fiat must rein in prescription drug prices.
Hillary Clinton proposes caps on drug prices and a mandate that pharmaceutical companies spend a preset percentage of revenues on research and development. She’d confiscate any excess to subsidize public biomedical research institutions like the National Institutes of Health.
Bernie Sanders wants us to purchase drugs from single-payer government healthcare like that in Canada that sets drug prices, thereby importing our northern neighbor’s price-control policy.
The brains behind these proposals are misguided academics, including physicians.
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Obamacare co-author bioethicist Ezekiel Emanuel has declared, “Nobody disputes” that prescription drug prices are “out of control.”
Arthur Caplan, another celebrity bioethicist, protested the “high cost of drugs” on a popular physicians’ website, lamenting that “we are paying three times as much as Britain, six times as much as Brazil, [and] almost 18 times as much as India.”
Here’s how these authorities rationalize price controls: drug companies spend more on marketing than on research, their “net profits” are excessive and — industry leaders’ claims notwithstanding — unnecessary for the research on new drugs.
Nobel laureate economist Joseph Stiglitz has supported Clinton’s confiscation scheme, asserting, “Most of the important innovations come out of our universities and research centers like the National Institutes of Health.”
The politicians’ proposals backed by these academic pundits are intuitively appealing and dangerously false.
Industry marketing expenditures indeed exceed research investments; but no other enterprise pays close to as much for research. Absent marketing, sales don’t happen — doctors don’t learn about new drugs or how to use them.
Stiglitz is just wrong. Nearly 90 percent of drugs arise solely from industry, not government-funded research.
To pilot just one drug through the Food and Drug Administration’s labyrinthine approval process costs on average over $2.5 billion.
Less than 12 percent of drugs entering trials achieve regulatory approval, and the few successes must compensate for the failures.
Accordingly, the maligned “excessive net profits” of the pharmaceutical industry are accounting artifacts.
After most companies like Wal-Mart or CVS Caremark pay their bills, they invest what’s left over into rapid revenue-generating efforts. Drug companies, by contrast, have to set considerable funds aside to cover risky development projects.
A research investment mandate is an especially bad idea. Nobody has the ability to determine how much research a given company should perform.
That politicians don’t grasp the nuances of drug development is unsurprising.
Here’s what to expect from price controls: less return on successful drug development, leading firms to scale back research. Innovation will decline.
Patients — in the United States and everywhere else — won’t obtain new life-saving medications.
Contrary to hopes, life for patients afflicted with now poorly treatable diseases will remain nasty, brutish and short.
Pundit Emanuel has penned a provocative essay entitled, “Why I Hope to Die at 75.” Perhaps he has that goal in mind for all of us. It certainly would rein in drug spending.
Thomas P. Stossel is American Cancer Society Professor of Medicine at Harvard and a visiting scholar of the American Enterprise Institute.