(A version of this Health Alert was published by the Washington Examiner.)
With perfect timing, Hillary Clinton’s presidential campaign announced a proposal to impose federal price controls on prescription drugs the day after Turing Pharmaceuticals declared it was raising the price of Daraprim, a medicine to combat the “toxoplasmosis” parasite, from $13.50 to $750 per pill.
Politically, Clinton may be on to something: In an August poll conducted by the Kaiser Family Foundation nearly three quarters of respondents said prescription costs are “unreasonable.” Four in ten favored government regulation to keep costs down. Daraprim’s huge price increase, which was condemned by the pharmaceutical industry, has nevertheless thrust prescription drug prices into the political limelight after years of calm. Starting in 2005, the federal government provided seniors heavily subsidized prescription drug coverage through the Medicare Part D program.
Soon thereafter a number of common blockbuster drugs — such as Lipitor, Plavix and Oxycontin — went off patent, meaning cheaper generic (copycat) versions became available. Chain pharmacies started offering a month’s supply for just a few dollars. The problem of high prescription prices was solved — for a while.
Then came the “specialty” drugs — medicines that treat less common conditions affecting fewer patients than the blockbuster drugs, but have equally massive research and development (R&D) costs. One recent study estimates the cost of the typical new drug at nearly $2.6 billion. Sovaldi and Harvoni, expensive new medicines that effectively cure Hepatitis C, are good examples. Given this background, Clinton raises a legitimate issue: What can be done to reduce high drug prices? But she offers the wrong prescription.
First, she asserts that prescription drug prices would drop if we curb advertising. That may be true, because patients are unlikely to demand medicines of which they are unaware. In other countries, where free speech is not constitutionally protected, it is not uncommon for governments to ban so-called Direct-to-Consumer (DTC) advertising of prescription drugs. This effectively curbs demand for cutting-edge new treatments that may be expensive. Ignorance is not bliss, however. Clinton asserts that DTC ads promote “confusing, misleading or incomplete information or exaggerated claims if not regulated effectively.” She appears unaware that the U.S. Food and Drug Administration (FDA) already regulates DTC advertising and that FDA’s Office of Prescription Drug Promotion must approve every ad campaign, along with its promotion to doctors.
Because the Constitution would inconveniently prevent a Clinton White House from banning DTC ads, Clinton proposes that pharmaceutical companies not be allowed to deduct ad costs as a business expense for tax purposes. Every other industry, we presume, would remain free to deduct advertising spending. This backdoor tax increase on pharmaceutical companies would have two effects: 1) It would increase government revenue, which Clinton would “invest in research, ” she says, and 2) It would reduce the amount of money available to pharmaceutical companies for R&D.
Clinton also would impose federally dictated prices on new medicines by forcing drug makers to calculate, using some sort of pseudoscientific formula, each new drug’s R&D cost. This is nonsense. A drug company’s management sees how things are going in the research portfolio and moves money around based on various scientific and business factors. Lessons learned from an unsuccessful drug experiment may be useful for another compound. A line of inquiry may dead end and be forgotten for a couple of years until a new scientist decides to have another look. Some research may be applicable to more than one new drug in the R&D portfolio. And if Clinton had any business background she might know that drug makers often buy and sell drugs that are still in the development process. Selling companies doesn’t tell buyers how much they’ve already spent on R&D.
Finally, Clinton ignores a legitimate way for the federal government to curb drug prices: By reducing needless FDA red tape and streamlining the drug review and approval process, which adds billions of dollars to pharmaceutical R&D costs and delays the introduction of many lifesaving and effective drugs. The House of Representatives recently passed a bill fundamentally reforming the FDA, the 21st Century Cures Act, with strong bipartisan support. The Senate will take up the legislation after Thanksgiving. The next president needs to lead this reform effort, not grandstand against high prescription prices.