The topic of healthcare has typically been a lightning rod election issue, and the 2016 presidential campaign is no exception. Hillary Clinton, oft remembered for her failed 1993 health reform plan, is promising to “improve” Obamacare by lowering the cost of prescription drugs, and introducing new and unprecedented regulatory requirements for the pharmaceutical industry. To lower prescription drug costs, the former first lady has a multi-pronged approach to restrict one of the last segments of the healthcare industry not under control of the federal government.
Central to Clinton’s plan is to grant the U.S. Department of Health and Human Services (HHS) the authority to negotiate drug prices with pharmaceutical companies, as the Department of Veterans Affairs (VA) currently does.
The VA – a closed healthcare system known for long wait lists and poor health outcomes – employs a process of ‘negotiation’ that is founded on restricting access to newer and more effective treatment for veterans. What typically makes the final formulary is the cheapest option for the Department, and does not include many of the exciting, more promising medical innovations that have recently come to market.
Stanford University Researchers findings show the restrictive nature of the VA formulary. A recent comparison revealed only one-third of prescription medicines available to Medicare beneficiaries are currently available to veterans as they are considering treatment options.
The Medicare Part D program does currently negotiate the price of prescription drugs, but if HHS sets drug prices for Medicare in the same manner as is done for the VA, Medicare will certainly devolve into a government-run program that robs seniors of their freedom of choice, while significantly lowering quality of care for those who have spent their lives paying into the Medicare system. As currently structured, Prescription Drug Plans (PDPs) work with pharmaceutical companies to develop their drug formularies, then Medicare beneficiaries choose the plans they want, according to which best serves their healthcare needs. This program design works, as is shown by the availability of newer prescription drugs for seniors, which has seen only a 1.5 percent annual increase in cost to beneficiaries over the past eight years.
Another part of Hillary’s proposal is to mandate a minimum threshold of pharmaceutical investment in research and development (R&D), or face tax penalties. The notion of requiring minimum funding for reinvestment in R&D implies pharmaceutical companies do not make drug development a priority, which is grossly misleading.
Developing new prescription medicines is a ten to fifteen year multi-billion-dollar process that requires a return greater than the original investment to overcome the high risk involved in drug development. In 2013 alone, the pharmaceutical industry invested $51 billion in R&D, creating 3.4 million high-wage and highly-educated jobs, totaling $789 billion in economic output. Why disrupt this sector of the U.S. economy?
This proposal would also have an unavoidable impact on breakthroughs in drug development. Revenues earned from pharmaceutical investment are critical to moving forward in developing specialty drugs and are the reason the U.S. is leading the discovery of medical innovations for new ways to manage chronic conditions such as heart disease and diabetes.
Over the past 25 years, prescription treatments have reduced the mortality rate for cancer patients by 20 percent. While this progress is significant, there is still much we do not know about how cancer develops, spreads, and what can be done to stop the growth of cancer cells. We do not want to interrupt the pace of private sector cancer research, where increasingly, prescription drugs are substitutes for surgery or other medical procedures.
In addition to targeting R&D costs, Hillary also intends to reduce the time pharmaceutical patent protections remain in effect, from 12 years to seven. This proposal will undoubtedly cause R&D investors to shy away from the risky and uncertain pipeline for developing specialty prescription drugs. If private-sector companies are unable to recover the cost of capital during the patent life of their newest medicines, it will dramatically reduce investment in the discovery of experimental specialty therapies. While penalizing the industry with regulatory requirements may sound good on the campaign trail, cutting incentives will result in fewer life-saving treatments and cures over time.
If Clinton’s rhetoric calling to ‘improve’ Obamacare by controlling costs is realized, healthcare will become even more costly and more centralized. In short, leaders should look at ways to preserve and enhance existing incentives, not restrict patient access and discourage medical innovation that could very well end America’s standing as the world leader in biomedical innovation.
Crossposted at www.alec.org.
Mia Heck is director of Health policy at the American Legislative Exchange Council (ALEC).