Two items published last week bear on the ongoing debate over the advisability of more vigorous efforts to restrain the high prices of prescription drugs.
The first is Making Medicines Affordable, a detailed report from the National Academies of Science, Engineering and Medicine. The report makes several specific policy recommendations, of which I find these particularly noteworthy:
- Allow all concerned federal agencies to join in negotiating prices with manufacturers over drug prices.
- Deter efforts by manufacturers to discourage use of generics and biosimilars.
- Require greater price transparency, including full disclosure of net pricing, rebates and discounts.
- End tax-deductibility of direct-to-consumer advertising of prescription drugs.
However, the National Academies report stops short of advocating strict price controls. As it cautiously notes,
There may be trade-offs between current drug affordability and new drug availability. Controlling drug costs too rigidly, for example, could potentially reduce the expected profits of drug companies, which could alter their decisions regarding major investments to develop new drugs.
The second item bears directly on this trade-off between affordability and availability. In Pharmaceutical Profits and Research and Development from the Brookings Institution, Richard Frank and Paul B. Ginsberg address the argument that steps to reduce drug prices will lead to less innovation in the future. They examine features of pharmaceutical markets that encourage production of “new” drugs that offer little if any therapeutic advantage and conclude that investments on research and development may already have pushed beyond the point of diminishing returns. As they put it,
The result of this type of “arms race” is “overinvestment” in certain clinical areas and lower rates of return on investment than hoped for. This state of affairs can continue indefinitely, eluding normal market self-correction mechanisms, due to prescription drug insurance that has become more common and more generous and to public-sector drug programs that are often passive purchasers.
If Frank and Ginsberg are right, then even the aggressive recommendations of the National Academies may be too cautious.