Capping drug prices isn’t cheap — in dollars or lives

Published 11:17 am Friday, October 30, 2015

Some people seem to believe that a good alternative for a $1,000 breakthrough drug is a $100 breakthrough drug.

Unfortunately, the real alternative is no breakthrough drug at all.

Lawmakers in Massachusetts and Pennsylvania have recently proposed bills that would set price caps for new medications. It’s a terrible idea. Government price controls on medicines actually wind up costing citizens and patients more in terms of both dollars and lives.

Researchers have made some amazing medical advances in recent years. New cancer therapies can do less harm to normal cells, have fewer side effects, and give patients improved quality of life. Antiretroviral drugs have increased life expectancies for HIV-infected patients by decades.

But it takes years and a huge investment in research and development for companies to come up with such advances.

The biotechnology used to develop Sovaldi, the hepatitis C drug released in 2013, was valued at $11 billion when drug maker Gilead purchased it. The drug cures 90 percent of patients in just a 12-week course of treatment. Prior to its advent, the best treatments for hepatitis C cured only about half of patients, required up to a year of therapy, and could cause vomiting and other flu-like side effects with each weekly dose.

At roughly $1,000 per pill, Sovaldi is indeed expensive — but compared to what? Treatments like Sovaldi exist because pharmaceutical companies have a shot at recouping their upfront research and development costs and returning a profit to investors. Those incentives would vanish under a system of price controls — and so would any number of new breakthrough medications.

In addition to extending and oftentimes saving lives, breakthrough drugs also reduce overall healthcare costs by preventing complications, costly surgeries, and hospitalization. Without Sovaldi’s breakthrough, more than 3 million Americans infected with hepatitis C would have fewer and worse treatment options. Some would need liver transplants, which cost more than $500,000.

Research by Columbia University economist Frank Lichtenberg suggests that each dollar spent on new, more effective drugs can save over six dollars in overall healthcare costs.

It’s no surprise that insurance companies support government price controls like the bills proposed in state legislatures. But by decreasing the incentive for companies to come up with new drugs, price caps leave us with fewer tools to treat chronic disease.

It’s estimated that in nations with price controls, drug makers miss out on developing three or four new medicines each year. Findings by the National Bureau of Economic Research suggest that controls which lower drug prices by 40-50 percent in the United States would lead to a 30-60 percent decrease in the number of R&D projects for new drugs.

Prices would fall in the short-term, but we’d pay for it with fewer and worse treatment options.

The best way to lower drug prices is to produce more treatment options, as that’ll enhance competition. The release of a hepatitis C treatment from pharmaceutical AbbVie has already spurred Gilead to offer deep discounts on Sovaldi — up to 46 percent in 2015.

Doctors and scientists have been trying to find cures for scourges like cancer and Alzheimer’s for decades. No one knows how many more years of research it will take, but it’s clearly a marathon, not a sprint. It would be a tragedy for lawmakers to cut back on the incentives to finish the race when there are so many more potential breakthroughs still on the horizon.

KENNETH THORPE, Ph.D., is the chairman of the Partnership to Fight Chronic Disease.