Testimony to the Senate Finance Committee on “Prescription Drug Price Inflation”
The U.S. Senate Finance Committee held a hearing on March 16, 2022, titled, “Prescription Drug Price Inflation: An Urgent Need to Lower Drug Prices in Medicare.”
Among the expert witnesses was Stephen Ezell, ITIF’s vice president for global innovation policy. (In the video, his testimony begins at 00:47:56.)
Summary
While there is a need to reform the Medicare Part D program—notably by capping out-of-pocket patient costs and reforming rebate policies—the reconstructive surgery of drug price controls envisioned in the Build Back Better Act (BBBA), the H.R. 3 legislation before it, or the prior administration’s International Price Index (IPI) is not the ideal way to manage America’s drug prices.
- This testimony begins by contending that U.S. prescription drug expenditures have been broadly stable and consistent over time—and expected to continue to be so in the future—while broadly in line with those of international peers.
- It will show that prescription drug prices are, in fact, not a contributor to increased U.S. inflation rates and that, overall, consumer prescription drug expenditures have risen at a much lower rate than the increase in total healthcare expenditures since 2005.
- It will contend that to the extent policymakers wish to reform drug pricing challenges, they need to consider the costs that are introduced by all actors across the pharmaceutical supply chain and compare profits in all relevant sectors, where the drug industry has lower profits than most other healthcare subsectors.
- It will then examine the impact America’s biopharmaceutical sector has on the U.S. economy and examine the significant value of the medicines and therapies the sector produces on Americans’ quality, longevity, productivity, and the economic impacts thereof.
- It will contend that stringent drug price controls are not only unnecessary and unwarranted but actually quite damaging in a number of ways, including by inhibiting drug research and development (R&D), actually impeding patients’ access to innovative medicines, and potentially undermining nations’ biopharmaceutical competitiveness, as drug price controls have in other nations.
- It concludes with policy recommendations to better manage drug prices, including policy actions that could increase the R&D efficiency of America’s biopharmaceutical innovation system and reforms to assist seniors at the pharmacy counter.
America is fortunate to be home to the world’s leading biopharmaceutical industry: one that leads the world in R&D spending and the introduction of innovative, often breakthrough drugs that improve, extend, and save lives. That America has become the leader as a result in part of intentional and conscientious public policy choices over the past four decades to make it so: robust public and private R&D investments, investment incentives like the R&D tax credit, and strong technology transfer and commercialization systems. American policymakers should be proud of this industry and have as their foremost consideration policies that could further enhance its innovation and productivity potential, such as increased National Institutes of Health (NIH) R&D funding, expansion of public-private industrial R&D programs such as the National Institute for Innovation in Manufacturing Biopharmaceuticals (NIIMBL) that seek to enhance the cost-effectiveness of drug discovery and manufacturing practices, and building up America’s biomedical STEM (science, technology, engineering, and mathematics) talent pipeline.
On February 2, 2022, President Biden announced an aggressive, revitalized cancer moonshot that seeks to reduce the death rate from cancer by at least 50 percent over the next 25 years while improving the experience of people and their families living with and surviving cancer, thus trying to “end cancer as we know it today.” While these are certainly laudable and needed aspirational goals, the last thing policymakers should be doing is introducing stringent drug price controls that would hinder investments needed to meet the challenge. Moreover, this is at a time when competitors, especially China, are seeking to overtake America’s lead in the biopharmaceutical industry.
Policymakers should proceed very cautiously before drastically reforming a successful system that has enabled America to lead the world in biomedical innovation, to get innovative drugs to patients first, to support a vibrant and competitive domestic biopharmaceutical industry, and to do so while maintaining stable prescription drug expenditures (as a share of total healthcare expenditures) over time through a system that marries incentives for innovation and conditions for competition with pathways to introduce cheaper generic and biosimilar drugs.
