The ongoing coronavirus pandemic is a cause of much anxiety and uncertainty—how long will it last, and when will effective treatments be available and what will they cost?
Indeed, surveys indicate that a substantial number of Connecticut residents—54%—are “worried” or “very worried” about affording treatment for COVID-19.
People fear that, for the average American, effective coronavirus treatment may be out of reach. Unfortunately, these fears are not entirely unfounded.
While the healthcare industry is working at an unprecedented pace and re-directing a huge proportion of research and development budgets to creating, manufacturing and making accessible COVID-19 treatments and vaccines, the Trump administration has adopted policies that undermine this effort.
On September 13, 2020, the White House released an executive order it marketed as a means to lower U.S. healthcare costs.
This Most Favored Nation executive order attempts to control healthcare costs by imposing distorted foreign-based price controls over Medicare Part B and Part D. MFN mandates that Medicare’s prescription drug prices must reflect the lowest price among several foreign “reference” nations.
The administration argues that this rule would make Medicare more affordable by reducing the cost of medicines. In the real world, however, MFN might reduce costs slightly at the price of dramatically reducing supply and access.
The cost of certain medicines in some countries is lower than in the U.S. because their governments arbitrarily set prices essentially just above the cost of manufacturing the drug.
A book isn’t just the cost of paper and printing, and a smart phone isn’t just the cost of the plastic and metal of which it’s made. Similarly, once the recipe for a drug is figured out after years of research and development, manufacturing it is generally not that costly.
Most of the cost is bound up in the scientists and the complex, highly sophisticated labs and clinical trials necessary to work out the recipe for an effective treatment or cure.
R&D: Costly Price Tag
Unlike just about any other product—except perhaps a new space vehicle—developing a new medicine takes a huge amount of time and vast financial resources—approximately 12 years and $2.6 billion per drug.
Other countries freeload on U.S. biopharma’s investment in research and development, siphoning medicines off our supply chain below cost. But if we adopt their prices new drug development will evaporate and the drug manufacturing delivery supply chain will wither.
The result: America’s innovation machine on life support and drug shortages for consumers.
An independent analysis has already dispelled the idea that MFN will generate healthcare savings. Indeed, a Kaiser Family Foundation study found that “most people are unlikely to see drug cost savings from President Trump’s ‘Most Favored Nation’ proposal.”
This result is unsurprising—government-mandated price controls never authentically reduce costs long-term. Rather, MFN, like other poorly crafted healthcare policies, would merely shift the cost burden to a third-party.
If that third party—in this instance, the biopharmaceutical industry—cannot recoup its investments, the results will be disastrous.
By reducing the price of prescription drugs to below-market levels, MFN compels biopharmaceutical manufacturers to accept persistent losses.
As a result, biopharmaceutical companies will have fewer resources for the production of existing medications and the creation of effective new treatments.
Healthcare access will decrease dramatically, and medical innovation will plummet as biopharmaceutical companies struggle under the financial handicaps imposed by MFN.
It’s troubling that the White House has elected to move forward with such a misguided policy as that reflected in the MFN—a decision that places healthcare access and innovation at risk. Worse still, they’ve done so amid the COVID-19 pandemic.
Americans need the biopharmaceutical industry working at full speed more than any other time in recent history. MFN saps biopharmaceutical resources when they’re needed most and places Americans’ healthcare in jeopardy.
Clearly, the administration’s executive order needs a reboot.