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The Price of Reform

In 1955, Jonas Salk announced that his polio vaccine was 90 percent effective and safe to distribute to children and adults. After deciding not to patent the vaccine, Salk forfeited an estimated $2 billion in profit in order to provide low-cost access to a vaccination that ultimately saved millions of lives. Medicine has come a long way since then, but, unfortunately, its accessibility has not improved. Today, approximately 1 in 7 Americans cannot afford to regularly fill their prescriptions.

It’s clear from the history of American drug pricing that Salk’s actions were an anomaly. Currently, prescription medication in the US is 2 to 6 times more expensive than it is in other countries, even among those with a similar GDP per capita. This may be partially because the US healthcare system is privatized, which means the prices of both drugs and insurance are largely at the discretion of private companies. Attempts to establish price regulation often lead to higher healthcare costs, as insurance companies compensate for lost profits. The regulation of drug prices, though, is a complex matter: Although lowering drug prices may be good for patients, price regulations hinder the healthcare industry’s ability to adapt and threaten to delay the introduction of new drugs.

To address this issue, US Senators Jack Reed and Sheldon Whitehouse of Rhode Island have co-sponsored a package of three bills that seek to tackle inflated drug prices by encouraging competition over regulation. All three bills hope to drive down drug prices and increase patient choice by addressing drug importation, Medicare, and advertising. Together, these bills would be a significant step in the right direction toward effective drug price regulation.

Of the three, the bill that will have the greatest effect on US drug prices is S. 469, the Affordable and Safe Prescription Drug Importation Act. Among many things, this bill would allow the importation of lower-cost FDA approved drugs from Canada. A report from the American Medical Association found that granting exclusive production rights of a drug is the leading cause of high prices. Without competition, monopolistic developers and distributors have free rein to set the initial prices and thus institute price hikes. Drugs in Canada, by contrast, are less expensive because Canada’s Patented Medicine Prices Review Board determines what prices are acceptable. If S. 469 were implemented, these lower-priced Canadian alternatives could drive down the prices of US competitors and thus provide more viable drug options for patients.

Yet this bill doesn’t disrupt the drug-specific monopolies protected by patents. At present, the US cannot import a Canadian substitute if it infringes upon an existing patent. Patents are intended to incentivize research, but many are manipulated in order to extend their exclusivity and delay the rollout of much cheaper generic counterparts. When patents are staunchly protected, patients are forced to purchase name-brand prescriptions for up to 20 years after its invention before generic counterparts can enter the market.

On the front of patent regulation, the most promising action is Congress’s current investigation into patents that stymie competition. This was spurred by a 2017 deal between the company Allergan and the Saint Regis Mohawk tribe in New York. Allergan sold the tribe its patent, which maintains its protections longer under their sovereign immunity. In return, the tribe gave Allergan the exclusive right to develop the drug Restasis. Set to enter the Supreme Court in a few months, this case may spur changes in patent regulation.

Aside from the exclusivity of current patents, the root cause of excessively high drug prices may be the startling lack of information flow between stakeholders—insurance companies, the government, employers who pay directly for drugs, and their patients. Many patients are simply not aware of the presence of cheaper, generic drugs. In addition, the National Community Pharmacists Association found that 20 percent of patient copays actually exceed the baseline price of the drugs. Reforming this system would allow patients to pay directly for more affordable and equally effective non-brand prescription medication.

The second bill in the Reed and Whitehouse package, the Empowering Medicare Seniors to Negotiate Drug Prices Act, would give Medicare, the single largest drug purchaser in the US, control over the prices of the drugs it purchases. Unlike private purchasers, the federal government cannot directly negotiate the prices of the drugs it buys. Under this bill, Medicare could drive down prices with its bulk purchases at these newly negotiated rates.

While the National Academy of Sciences recommends giving Medicare the power to negotiate, more conservative economists have pointed to the US government’s inability to negotiate more effectively than private companies. Previous attempts to regulate Medicare by giving them the lowest price or 15 percent off the list prices have failed. Instead of providing low prices to Medicare, companies increased their prices on the whole and removed discounts. In the end, the regulation did not save the government any money.

So, Reed and Whitehouse’s goal sounds promising: This proposal gives Medicare the same opportunity other private insurers have to influence the prices of the drugs they buy for their customers. However, there are concerns with this bill. The primary issue facing this bill is that its direct impact is not comprehensive; It only accounts for Medicare and does not change the process that pharmaceutical companies use to set costs with private health insurers. It has the opportunity to positively impact seniors, but it cannot significantly impact the private system.

The End Taxpayer Subsidies for Drug Ads Act aims to better regulate drug advertising and address tax loopholes. This bill would prohibit drug companies from accepting tax deductions by writing off advertising in their budget—a very unreasonable combination that gives drug companies more leniency. Drug companies spend an estimated $6 billion on drug ads for patients, which, with the existing tax loophole, can be written off as a tax deduction. Reed and Whitehouse hope this bill might reduce profit margins while also dissuading high expenditures on advertising.  The Reed and Whitehouse package aims to increase competition and incentivize drug companies to give the best available prices to patients. Under the current system, drug companies have total autonomy to hike up the prices of their patented products, making much-needed medicine unaffordable. This package is a step in the right direction. By increasing competition, allowing federal government negotiation, and revamping drug advertising, Reed and Whitehouse’s package may finally free patients from having to choose between their health and financial wellbeing.

Photo: “Syringe Pill Capsule