Opinion: To Keep Drug Costs Low, Think Competition, Not Price Controls
A robust, competitive market is the best way to promote innovation and reduce prices
Even in today’s highly partisan environment, there’s one thing nearly all Americans agree on: The soaring cost of prescription drugs is alarming.
In fact, 80 percent of Americans consider the cost of prescription drugs unreasonable. At the same time, a majority of Americans recognize that prescription drugs have improved countless lives. The president’s recently unveiled comprehensive blueprint to lower prescription drug costs has many ideas worthy of exploration. However, if we truly want to reduce costs and make life-changing and life-saving medications accessible to all Americans, we must increase competition among prescription drugs — particularly new drugs that have the ability to cure diseases, but face limited competition.
Throughout my time in Congress, I have focused on creating a competitive marketplace for prescription drugs and understand what it takes to lower drug costs, expand patient access, and create life-saving treatments and cures for the nation’s sickest and most vulnerable.
More than three decades ago, I championed the Hatch-Waxman Act, which established a system for regulating drugs that continues to provide sensible ways to reward new products while encouraging generic competitors. Because of this law, nearly 89 percent of the drug market today is composed of generics, giving more patients access to high-quality medicine. Based on generic approvals in 2017, the Food and Drug Administration estimates a whopping $16 billion in savings.
While Hatch-Waxman lowered drug prices and opened up opportunities for competitors, today we are on the cusp of hundreds of innovative, breakthrough cures that do not have generic competition. And these types of drugs — custom-made, specialty treatments that target specific diseases — make up the majority of the country’s rising costs.
Just in cancer treatment alone, more than 700 drugs are in late stages of development, according to a recent study. Many of the new therapeutics are more effective than other options currently available. With cutting-edge innovation, however, comes increased drug costs.
In 2017, the median cost of new cancer drugs exceeded $150,000 in the United States, more than doubling from just a decade ago. And although the majority of these drugs are used by less than 10,000 patients in any given year, it’s a challenge for federal and state programs — and consumers — to absorb the increased costs on the front end.
Americans want access to the best possible treatments, and they want them to be affordable. To that end, we must prioritize reforms to the Medicare and Medicaid programs, which make up more than a third of all health care spending in America. We must also encourage the development of drugs — known as biosimilars — to compete with the types of breakthrough therapies mentioned above, not just for cancer, but for chronic conditions as well.
Fortunately, the president’s blueprint has proposed some policies that fit those criteria. One of his proposals is to promote value-based arrangements, such as basing a drug’s price on its intended benefit, which is being explored in the private market. This type of arrangement could save money over the long term by reducing the need for more costly services down the road. It is worth exploring whether similar arrangements can work in Medicare and Medicaid, and whether they drive increased competition and savings.
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The administration’s blueprint also calls for modernizing the popular and highly successful Medicare Part D program to make it more competitive to drive down costs. A first step would be to address how drugs are paid for in the so-called donut hole.
Further, while the Centers for Medicare and Medicaid’s recent efforts to facilitate competition for new, breakthrough or specialized drugs are commendable, more action is needed to ensure a clear path from FDA approval to reimbursement that includes a discussion of cost to consumers. And the FDA should finalize guidance that provides certainty to doctors and pharmacists about when a lower-cost biosimilar drug can be used in place of a more expensive drug.
A robust, competitive market is the best way to promote innovation, and to lower premiums and out-of-pocket costs for Americans — not more price controls that push the health care system toward single-payer, which would further burden taxpayers without actually reducing drug costs. I am confident we can chart this course without breaking the bank, and I welcome collaboration with the administration to move in this direction. It’s what Utahns — and all Americans — want and deserve.
Sen. Orrin G. Hatch, a Republican, is the senior senator from Utah and serves as chairman of the Senate Finance Committee and a senior member of the Senate Health, Education, Labor and Pensions Committee.