Most people would agree that drug prices are rising fast. I’m sure my wife would, and I couldn’t argue with her based on what we are paying. But are they really rising?
Dr. Joel Zinberg, senior fellow at the Competitive Enterprise Institute, says no. He’s also director of Paragon Health Institute’s Public Health and American Well-being Initiative and associate clinical professor surgery at Icahn Mount Sinai School of Medicine. Writing in The Wall Street Journal, Zinberg takes issue with the commonly held belief drug prices are out of control.
Zinberg says the worst thing that could happen now is for President Biden to propose drug price controls to solve a problem that doesn’t exist. Although the Build Back Better legislation is on the rocks, the drug price control portion of the bill may survive, if only through executive orders. That’s what you do when democracy stands in the way of your agenda.
President Biden insists such controls are needed because pharmaceutical companies are “jacking up prices on a range of medicines.” He promises to “end the days when drug companies could increase their prices with no oversight and no accountability.” I guess he’s forgotten about free market forces – capitalism – in this era of socialist thinking.
Dr. Zinberg tells us an inconvenient truth – drug prices are lower than when Biden took office. Even as inflation is running rampantly out of control, officially at 6.8% but in reality, much higher (the largest increase in 39 years), prescription drug prices actually fell 0.3%. To understand this fact, you must understand that list prices are not actual selling prices. Although a case can be made for increases in list prices, the availability of discounts and rebates have actually lowered the prices we are paying for prescription drugs.
The best measure of drug prices is the CPI-Rx, which measures price changes in a large basket of drugs over time, accounting for discounts and most rebates. Another strength of the CPI-Rx is that it accounts for price declines that occur when consumers substitute cheaper generic versions for brand-name drugs. Too often, Mr. Biden and others focus on a few high-priced drugs and fail to consider the entire market.
It is true that prices for prescription brand-name drugs are higher in the U.S. than in other countries. These higher prices make it possible to fuel drug innovations that bring us such life-saving drugs as the Covid vaccines. But U.S. regulatory, legal and incentive structures encourage aggressive price competition and switching from branded to generic drugs. As a result, Americans use more generics (9 out of 10 prescriptions) and pay less for them (16% lower on average) than in other developed countries. Nearly all European countries impose price controls on generics, making them less available and more expensive.
Discount coupons have had a large impact in America. Companies such as GoodRx and SingleCare have lowered prices, sometimes drastically, for many commonly used drugs. It is often less expensive to use these coupons than to use healthcare drug insurance. A recent analysis of per-unit prices of 27 types of insulin by GoodRx found that overall retail prices declined by nearly 6% since 2019 because of recent approvals of generic and biosimilar drugs. This is largely due to a strong push to approve more generic drug manufacturing during the Trump Administration by FDA Director Scott Gottlieb.
What will price controls do to drug innovation? This is the most alarming news. University of Chicago economist Tomas Philipson estimates Biden’s proposed price controls could lead to a 29% to 60% reduction in research and development, resulting in 167 to 342 fewer new drug approvals over the next 20 years. Where would we be today if they had done that in the years preceding the Covid pandemic of 2020?
Zinberg says, “Speeding approvals and increasing competition are a far better prescription than price controls that would strangle future innovation.”