Comment: Negotiating drug prices won’t hurt innovation

That excuse and others allow members of Congress to hide the real reason for their opposition: donations.

By Aaron S. Kesselheim and Jerry Avorn / Special To The Washington Post

For years, the pharmaceutical industry has managed to fend off legislative efforts to tame America’s brand-name medication prices, which are the highest in the world.

Americans spend twice as much per capita on drugs as residents of other wealthy nations, because we are the only country that lets drugmakers set any price they want for their products. Industry-friendly laws then oblige the largest public U.S. programs to pay for nearly all costly products the companies offer; a situation radically different from the nation’s other public procurement programs. As a result, we spend nearly 1 in 7 of our health-care dollars on prescription drugs.

High drug prices can limit patients’ ability to take what physicians prescribe; this in turn leads to non-adherence, worse health outcomes and often financial hardship for patients, including bankruptcy. It also raises health-care costs for public and private insurers alike.

President Biden’s $3.5 trillion spending plan includes a sensible provision that would let Medicare negotiate directly on pricing with pharmaceutical companies, just as the federal government negotiates prices on everything else it pays for. But last week, three key Democrats —Reps. Scott Peters (Calif.), Kathleen Rice (N.Y.) and Kurt Schrader (Ore.), all members of the House Energy and Commerce Committee — announced they would not support that part of the bill, even though they had supported a nearly identical measure in the past. Given likely unanimous Republican opposition to the bill (and Democrats’ slim majority in the House), that puts drug-pricing reform in mortal jeopardy. It also threatens to upend Biden’s whole spending plan, given its dependence on the money saved through the price-negotiation policy.

Seventy-nine percent of Americans think the price of prescription drugs is “unreasonable,” according to a 2019 Kaiser Family Foundation poll, and 9 in 10 say they support the idea of the government negotiating prices. This would seem to make the policy a natural fit for a party that has made health-care reform a signature issue in recent years. But the three lawmakers’ stance is probably explained by the scale of pharmaceutical spending to block reform. According to the Center for Responsive Politics, pharmaceutical and health-products industries spent $309 million on lobbying in 2020, placing it at No. 1 in lobbying expenditures among industry groups; with double the spending of the No. 2 group. The same year, the industry spent $89 million on well-focused campaign contributions. That trend has continued, with $171 million in lobbying expenditures so far this year and generous campaign contributions targeting key members of Congress. Peters alone received checks written by drug industry CEOs and lobbyists totaling $19,600 within two days of his opposing a price-negotiation plan in May.

Industry and its congressional advocates naturally don’t discuss these issues in terms of defending the companies’ exceedingly high profit margins. Instead, the battle is characterized as one involving the stifling or fostering of innovation (and the creation or destruction of jobs); a more marketable but misleading rationale. (The Democrats’ bill “would immediately halt private funding of drug discovery and development,” according to a Sept. 8 letter from biotechnology executives and investors, which Peters cited.)

While industry often plays an important role in drug innovation, a growing body of research shows that public and nonprofit funding and research are the ultimate source of many of the most transformative drugs we have for cancer, heart disease and other conditions. This taxpayer support comes during the riskiest and most pivotal points in early drug discovery, whereas private funding often comes in later to support development and regulatory approval. (With that late-stage investment comes control of the lucrative patents on these products.) High drug prices preferentially benefit the largest drug manufacturers, which spend only about 10 percent to 20 percent of their revenue on research and development; far less than they spend on marketing, administration and stock buybacks and dividends. Despite the dire warnings of drug-company lobbyists, as long as funding for the National Institutes of Health remains strong, the next generation of therapeutics will emerge, just as previous generations have.

Ironically, the current unconstrained drug pricing market can actually undermine meaningful innovation. That’s because paying any amount a manufacturer demands creates incentives to produce lucrative products that involve less financial risk because they continue down well-trod biochemical pathways or provide only incremental changes to existing medicines. While some of these products may be useful, only about a third of new drugs approved by the Food and Drug Administration in the past decade have been found to provide moderate or greater therapeutic value, beyond what’s already on the market.

Negotiating drug prices based on a medication’s clinical benefits — the approach taken in the congressional plan — would ensure high reimbursement for drugs that offer meaningful value to patients while decreasing the incentives to create treatments that offer little that’s new. This is the approach taken in most of the industrialized world. Such reform would start to make drug pricing resemble the economics of almost every other product in the economy.

There is more at stake this time around than drug prices alone. Architects of Biden’s “human infrastructure” plan have been counting on the roughly $500 billion saved on drug spending over 10 years to help finance other proposals, ranging from increasing the supply of affordable housing to universal preschool to extending the child tax credit to incentivizing the creation of clean energy. Thus, undermining the current plans for drug pricing reform could sink a large portion of the Biden economic agenda.

Key members of Congress in both parties are cynically betting that turning their backs on the public’s clear desire for a more sensible drug pricing strategy can be reframed at election time as “protecting innovation and jobs”; their enablers in the drug industry have already launched major media efforts to back up this narrative. But Congress shouldn’t let these myths once again keep patients from more equitable drug policies. Nor should the excessive demands of the pharmaceutical industry be allowed to put the administration’s entire economic agenda in jeopardy.

Josh Lauer is associate professor of communication at the University of New Hampshire and author of “Creditworthy: A History of Consumer Surveillance and Financial Identity in America.” He is currently a Kluge fellow in digital studies at the Library of Congress.

A specialist in the history of business and technology, Kenneth Lipartito is professor of history at Florida International University and Fulbright Scholar at the University of Toronto for 2021. He acknowledges support of the CIFAR Program in Innovation, Equity, and the Future of Prosperity for this work.

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