By Sandip Shah
Americans are worried about drug prices.
To address these concerns, lawmakers in both the Democratic House and the Republican Senate have introduced measures to restructure Medicare’s drug benefit.
While it’s great to see both parties working together, this approach — which would enable government officials to set drug prices — is penny wise and pound foolish. Their efforts threaten small and mid-size biotech firm that develop important medical innovations. And the cures of tomorrow may be put out of reach for millions of patients as a result.
Forty-five million Americans depend on Medicare’s “Part D” drug benefit. The government doesn’t provide Part D coverage directly. Instead, it allows beneficiaries to enroll in drug plans sold by private insurers. Private insurers push for competitive pricing from manufacturers, and for most cases, pass some of the savings to patients, while the rest goes to pharmacy benefit managers. The government subsidizes and regulates these plans. This allows seniors to choose the plan that best fits their medical needs, while driving out inefficiencies.
Congress wants to change Medicare with two separate bills in the House and Senate. The reforms essentially impose an enormous new tax on drug companies. The Senate’s proposed changes would cost biotech firms $55 billion over the next decade.
These taxes would drastically slow the pace of medical innovation, which is an expensive, risky endeavor. It costs over $2 billion to bring a single new treatment to market. And about nine in ten drugs fail during clinical trials.
Small biotech firms conduct much of this research in America. They rely heavily on venture capital investors to fund their efforts.
Those investors willingly fund risky projects because a single successful drug can generate enough revenue to pay for dozens of failures and still turn a tidy profit. Between 2000 and 2017, venture capitalists invested over $95 billion in more than 3,000 biopharmaceutical startups.
Thanks to such risk-taking, U.S. firms produce the majority of the world’s new medicines. Currently, more than 4,500 new treatments for cancer, Alzheimer’s, heart disease, and other conditions are in development in the United States. Three-quarters of these treatments are potentially first-in-class.
But huge new taxes would cause this innovative ecosystem to collapse. The levies would decrease drug developers’ potential returns on investment — and thus make it far harder for upstart research firms to raise funding. Small biotech firms — and the patients who depend on them — will be out of luck.
Normally, Americans want Congress to take bipartisan action. But when it comes to this particular reform, patients and scientists would be better off if gridlock prevailed.
Sandip Shah is founder and president of Market Access Solutions, which develops strategies to optimize patient access to life-changing therapies.