Reference Pricing without the Reference

  • by: |
  • 01/03/2007
U.S. Representative (“Mr. Television”) Rahm Emanuel (D-IL) has announced that he will offer legislation aimed at “driving down the price of prescription drugs.” The only thing such legislation would accomplish would be the “driving down” of pharmaceutical innovation.

The NewSpeak-named “Pharmaceutical Market Access and Drug Safety Act, will be cosponsored in the House of Representatives by U.S. Representative Jo Ann Emerson (R-MO) and in the United States Senate by Senators Byron Dorgan (D-ND) and Olympia Snowe (R-ME). What else do these legislators have in common? That’s right – they’ve all been calling for the legalization of drug importation. And since the American public has accepted (albeit reluctantly) the many hard facts that explain why importation is neither safe nor effective, these fine members of the United States Congress have moved on to another simplistic and unworkable scheme.

According to Emanuel, et al., this legislation will “allow American consumers, pharmacists and wholesalers access to Food and Drug Administration (FDA)-approved prescription drugs at world market prices.”

Mr. Emanuel and crew may come from different states, but they are all firmly in residence on Fantasy Island if they think, with the stroke of a pen, “world prices” can become “American prices.” Are there world prices for hotel rooms or airplane tickets? What about Big Macs or automobiles? Of course not. In fact, there isn’t a world price for anything – except perhaps a barrel of oil. And we all know how well that’s working out.

Perhaps what Mr. Emanuel’s Frustrated Four mean is that the US should mandate what is known as “reference pricing,” a system that compares the prices of drugs among a number of developed nations and then chooses an “average” or “reference” price. This is what’s done in the European Union and Canada for example.

That sounds fair, right? Well, not really when you consider that the reason these nations can get away with reference pricing is because they threaten pharmaceutical companies with patent expropriation is they don’t knuckle under to these dictated terms. So while these nations all say that prices are “negotiated” with pharmaceutical firms, that’s just not so. It’s not even a take-it-or-leave it proposition. It’s a take-it-or we’ll-take-it-from-you shake down.

So couldn’t we do that too? If the Europeans and Canadians can dictate prices why shouldn’t we do the same? The answer is that we cannot and should not and here’s why – the prices Americans pay for medicines fuel global research and development. Those nations with reference pricing schemes are getting if not a free ride, then a highly subsidized one on the backs of the American health care consumer. That’s not fair, and it’s not just, and it’s not sustainable – but it’s a fact. And they don’t even say “thank you.”

So what would happen if we Rahm through “world pricing?” 21st century pharmaceutical research and redevelopment would grind to a halt for lack of dollars to fund it. Just last month the Government Accountability Office reported that annual research and development spending by the pharmaceutical industry increased 147 percent, to $60 billion, between 1993 and 2004. At the same time, the number of new drug applications to the Food and Drug Administration grew by only 38 percent and about two-thirds of the new applications were for drugs that represent modifications to existing medicines, while 32 percent were for potentially innovative new drugs.

What Mr. Emanuel and friends don’t seem to understand is that 21st drug development is ever more complex and complicated as we move from small to large molecules and begin to aggressively research practical and personalized applications of the human genome. Here’s a fact that you won’t find out from The New Man from Illinois – over the last 50 years the average American lifespan has increased by 10 years – a full decade, due largely to the impact of pharmaceutical research and development.

Are you willing to trade tomorrow’s new cures and treatments for “world prices” today?

Because that’s precisely what will happen if we allow “world prices” for prescription medicines to be Rahmed down our throats.

Center for Medicine in the Public Interest is a nonprofit, non-partisan organization promoting innovative solutions that advance medical progress, reduce health disparities, extend life and make health care more affordable, preventive and patient-centered. CMPI also provides the public, policymakers and the media a reliable source of independent scientific analysis on issues ranging from personalized medicine, food and drug safety, health care reform and comparative effectiveness.

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