Most Favored Nation Endangers Innovation

Importing International Reference Pricing in the U.S. Jeopardizes Our Fight Against COVID-19 and Patient Access to Innovative Medicines

By Kristin Jones, President and CEO, Indiana Health Industry Forum

In late July, President Trump issued a series of executive orders affecting the access to and affordability of innovative medicines.  One of the orders focuses specifically on the importation of foreign price controls in Medicare Part B.  This policy will be detrimental to patients and to America’s researchers who are trying to develop new cures.  Indeed, adopting foreign price controls in Medicare at a time when biotechnology company researchers are working around the clock to fight COVID-19, a virus that is particularly ravaging America’s elderly, is entirely the wrong prescription.  It will undermine investment in Research and Development, chill our significant progress, and ultimately hurt the very patients who are most vulnerable to COVID-19 and other life-threatening diseases like cancer and Alzheimer’s.

Adopting foreign price controls will jeopardize patient access to innovative medicines. In the debate over drug pricing differences between the U.S. and other countries, the reality is that the absence of price controls in the U.S. leads to more and newer medicines made available sooner to Americans, with better health outcomes for those with serious diseases.  Nearly 90% of all new medicines launched since 2011 are available in the U.S., compared to just 50% in France, 48% in Switzerland, and 46% in Canada.  Of the 74 cancer drugs launched between 2011 and 2018, 95% are available in the United States. Compare this with 74% in the United Kingdom, 49% in Japan, and 8% in Greece.

One of the reasons we have been able to rapidly create and test vaccine candidates for COVID-19 is because many small biotech companies were already working on potential treatments for respiratory diseases.  It is these small companies that are driving more than 70% of all innovative R&D, including that for COVID-19, yet they are the ones that will be most negatively impacted by the President’s Executive Order.

As new, potential therapies are being brought to market, small companies depend on private investors to fund much of their development.  Because these therapies are not yet proven safe or effective, these companies generally operate at a loss – more than 90% of these companies are unprofitable – until they can sell or manufacture the therapy.  These early stage investors are taking on great risk – only 1 in 10 new therapies makes it to market – in the hopes of seeing a return on their investment.  The use of international price controls means that investors may become more risk averse and unwilling to fund innovative new therapies – ultimately, this means that many new treatments will never make it out of the lab to patients in need.  The next time there is a pandemic, we will be dependent on other countries’ research and excess capacity to obtain treatments.  Based on research done for H.R.3, a similar bill introduced and defeated last year, the White House Council of Economic Advisors found that as many as 100 fewer medicines would enter the market over the next decade as a result of these foreign price controls.

Since issuing the orders in July, the Administration has not provided any additional clarity or guidance on how they will be implemented.  This obfuscation further frustrates on-going negotiations with the pharmaceutical industry and endangers the nation’s patients waiting for cures that may never come.   America’s patients require better solutions.  Rather than impose artificial price controls – including those adopted by foreign countries with single-payer medicine systems – we should export the American system by promoting fair trade agreements that force foreign countries to respect American intellectual property and fairly value American innovation.  This would create a shared global responsibility for innovation.

Policymakers also should focus on solutions that correct market failures, increase competition, and lower costs for patients. Specifically, reforms should —

  • Make patient access and affordability paramount, by drastically reducing what patients pay for the drugs they need, and by removing other barriers to access imposed by insurance companies.
  • Move towards a value-based system for payment of drugs by removing federal barriers to innovative financing arrangements.
  • Promote generic and biosimilar entry after patents expire to create headroom for future innovation and target abusive practices that unfairly restrain competition.

We are pleased that one of the executive orders ends the perverse incentives and effects of the drug rebate system by making sure patients pay based on the discounted price of a drug rather than its artificial list price and by eliminating incentives for companies to increase list prices just to pay ever greater rebates demanded by the middlemen.

Unfortunately, that single step will not alleviate the problems with drug pricing for most Americans.  Free market based solutions are available and can be enacted quickly if the political will exists to do so.  It can be accomplished without damaging America’s leadership in biopharmaceutical innovation and placing patients in harm’s way. 

Please consider making your thoughts known by participating in an awareness campaign organized by the U.S. Chamber of Commerce.