President Obama recently gave a speech outlining a framework for reducing the federal debt by $4 trillion over the next 12 years. There are many questions about the president’s budget plans.
But the most urgent one is: Why has he declared war on health-care innovation?
The president has made a number of proposals that could stop medical breakthroughs from happening in this country.
For starters, he wants to give Medicare the power to negotiate drug prices.
Both the nonpartisan Congressional Budget Office and Medicare’s own actuaries have expressed doubt that the government has the ability to effectively negotiate lower drug prices in the program.
Left alone, Medicare’s prescription drug benefit, called Part D, employs market forces to give seniors more choices and drive down prices.
If the government steps in and starts negotiating, it would likely cause a shrinkage in the treatment options available to patients.
This is why then-senators Tom Daschle and Ted Kennedy drafted the “non-interference clause” in the Medicare Part D prescription drug benefit, which restricts the government from interfering with drug price negotiations in the private sector.
The Veterans Administration (VA) health-care plan negotiates drug prices directly. Its national formulary covers 59 percent of the 200 most popular drugs in the country. Medicare, meanwhile, covers 85 percent of those drugs, on average.
A study from Columbia University found that just 19 percent of all new drugs approved since 2000 were covered by the VA. And just 38 percent of drugs approved since 1990 were covered.
What’s happening is that VA negotiating tactics are driving out some drug providers from the program, leaving patients with fewer treatment options—and lower quality of care.
The president is also proposing to restrict intellectual property rights on brand name drugs to expedite the development of generics. This move would undermine pharmaceutical innovation.
Pharmaceuticals are a high-risk, high-reward business. For roughly every 10,000 compounds tested, only one actually gets FDA approval and makes it to market. And the average drug costs more than $1 billion to develop.
If the government reduces the window that pharmaceutical companies have to exclusively sell the drugs they development, there will be fewer financial rewards for such development, and firms will tamp down on the investments made toward new research. Ultimately, fewer new drugs will get made and patients will suffer.
Finally, Obama is looking to strengthen the Independent Payment Advisory Board (IPAB). Created by the Patient Protection and Affordable Care Act of 2010, IPAB consists of 15 presidential appointees and is empowered to make cost-cutting recommendations for Medicare. The panel’s recommendations automatically become law without congressional action.
IPAB is basically a group of unelected bureaucrats with an immense amount of power. There’s already a major lawsuit, Coons v. Geithner, challenging the constitutionality of IPAB. Making IPAB stronger puts even more power in the hands of people that largely don’t have to answer to American public. That’s simply dangerous.
IPAB is a stalking horse for bureaucrats to start rationing health care with abandon. And it’s likely going to start by cutting coverage for the most expensive treatments, reducing the financial rewards for the developer and, in turn, lowering the incentives to create new drugs in the first place.
America does need to reduce its staggering debt. But the president’s method of slashing public health-care costs by instituting measures that undermine drug innovation is the wrong approach.
Peter J. Pitts is the president of the Center for Medicine in the Public Interest and director of global health care at public relations firm Porter Novelli. He served as a U.S. Federal Food and Drug Administration Associate Commissioner from 2002 to 2004.