Lately, players in the health economy have been playing the “blame game” on rising health care spending. Price controls have taken center stage in state and federal proposals as a tactic to arbitrarily reduce prescription drug costs.
While it may seem like a reasonable solution to a problem we all face, price controls, wherever and whenever they’ve been attempted, always have undesirable short- and long-term economic consequences. Misguided and misinformed policies like these will harm patients here in Connecticut and across the country.
Despite political rhetoric to the contrary, controlling prescription prices will not solve the healthcare industry’s cost problem. They would only make things worse. These misguided economic initiatives reduce supply and therefore patient access to innovative medicines. They also discourage biopharmaceutical innovation, further restricting access to potential therapies and treatments, which in effect has the effect of increasing medical fees.
Price controls almost always have negative effects for the individual. In countries that control prices, shortages occur regularly and fewer drugs are available to patients. The same is true for any industry either: price controls trigger less production of the given product. Beyond the impact at the consumer level, price caps stifle innovation, particularly in the biopharmaceutical industry.
In 2017, prescription drug costs accounted for 10-15% of total healthcare costs. They have remained proportional to overall costs for almost 75 years. Most expenses consist of hospital visits, surgery, doctor visits and administration.
Instead of considering the prospect of price controls, regulators should turn their attention to intermediaries in the drug supply chain, such as Pharmacy Benefit Managers (PBMs). They skim profits from the difference between the drug listing price and the discounted price received for bulk purchase. Instead of passing the savings on to the public at the pharmacy counter or to R&D, these intermediaries keep the profits, adding minimal value in the process.
Price controls and other supply chain actors stifle medical innovation by limiting biopharmaceutical industry revenues, which are essential to fund R&D efforts to cure and treat a wide range of diseases and diseases. ailments. This lack of funding hampers companies’ ability to invest in high-risk biomedical research and development. This slowdown in investment is hurting both consumers and the broader healthcare industry.
With nearly 550 million vaccine doses administered nationwide and more than seven million in Connecticut alone, the enormous impact and value of risk-laden biopharmaceutical R&D should be evident. Industry contributions during COVID-19, including vaccines and antibody treatments, make it clear that innovation and appropriate funding are key to developing breakthrough medical advances.
Biopharmaceutical R&D efforts to develop vaccines and cures have largely lifted us out of the pandemic, allowing society to return to some level of pre-COVID normalcy. One would think that this success would make everyone understand the value of pharmaceutical innovation. Unfortunately, this has not been the case, as the continued push for health care price controls aptly demonstrates.
The biopharmaceutical industry has incredibly high barriers to entry. On average, a company needs $2.7 billion and 10-13 years to develop a drug from lab to FDA approval. Most lab concepts fail. The few successful drugs financially support the massive R&D expenditures for global biopharmaceutical investments. Only one in 1,000 research projects results in FDA approval. Only 12% of drugs in clinical trials pass the hurdle of obtaining the safe and effective status necessary for FDA approval. Price controls would limit the potential return on investment of biopharmaceutical companies, crippling innovative R&D efforts. PBMs and other intermediaries create effects similar to price controls.
The lack of profits to fund R&D efforts hampers innovation but significantly harms state economies. In Connecticut, biopharmaceutical companies retain nearly 10,000 workers. Indirectly, prescription drug innovation supports tens of thousands of additional jobs across the state. The biopharmaceutical industry needs a highly skilled and educated labor market which is inherently beneficial to Connecticut. Price controls would likely lead to layoffs and lower production, hurting these key innovators and the companies that employ them.
Prescription drug price controls will reduce access to drugs and derail biopharmaceutical innovation. More importantly, it will harm Connecticut’s most vulnerable: the elderly, the immunocompromised, and anyone who relies on reliable access to innovative treatments. For the sake of these people, it is time to reject health care price controls in any form and embrace the value of biopharmaceutical innovation.
Paul Pescatello is president of We Work for Health Connecticut.