By Benny Sun
On September 16th, 2015, Martin Shrekli, a pharmaceutical entrepreneur known as “ Pharma Bro” and infamous for his online feud with the Wu-Tang Clan, acquired the living-saving drug Daraprim which had initially cost $13 per pill. The very next day, he jacked up the price up to $750 – a price hike of over 5000%. Soon Shrekli became the most hated face in America, an embodiment of the greed of the pharmaceutical industry. Unfortunately, Shrekli’s actions are not a rare occurrence. Rather, they follow an alarming trend of rising healthcare prices which are leaving thousands either at the brink of death or nearing poverty to pay for their exorbitant medical costs. In fact, near the beginning of 2020, average price hikes on prescription drugs rose by over 10% across the board. To address this impending issue, Speaker Nancy Pelosi proposed HR3 or the “Lower Drugs Costs Now Act” in September 2019, which implemented sweeping reforms across the healthcare system. HR3 contained two major components: first, it would drastically decrease all drug prices for anyone covered by private insurance and second, it would reinvest the savings into new breakthrough treatments. All in all, HR3 has become a controversial bill supported by the majority of Democrats but despised by many Republicans.
Congress’s debate over drug pricing mainly centers around the trade-off between accessibility and innovation. Many Republicans claim that only the small pharmaceutical companies would suffer under these barring regulations, which can drastically reduce America’s drug innovation output. A report from the Congressional Research Service finds that US companies could lose over $358 billion dollars in profits annually, resulting in significant cuts to research and development budgets and decreasing the new innovative drug output from small companies by 88%. This could be catastrophic for the pharmaceutical industry; as CNBC writer Lori Ioannou explains that because startups need a way to appease new investors to fund their projects, they often produce the most innovative and risky drugs in the market, accounting for 63% of new drug approvals in 2018. With a drastic reduction in the profitability of the pharmaceutical industry, venture capital investment and seed funding into startups could suffer, preventing many companies from creating innovative drugs in the first place. This political discourse over drug pricing is especially vital, as the importance of pharmaceutical innovation cannot be understated. Republicans such as Mitch McConnell argue that promoting innovation helps consumers in the long term, as general improvements on existing drugs could lower drug prices along with generics development. Moreover, innovation in the United States not only benefits Americans but also the dozens of other countries that are able to buy these essential medicines at often discounted prices. The National Bureau of Economic Research finds that US pharmaceutical innovation accounted for an incredible 73% increase in life expectancy in developing countries. In conclusion, while critics demonize the Republicans for supporting the “greedy” drug corporations, many downplay how drug innovation impacts both the developing and developed world.
However, many Democrats argue that HR3 would save the thousands of suffering and desperate Americans who are unable to take their medicine and could jumpstart innovation in the pharmaceutical industry. A Center for American Progress reports finds that the bill could give the government authority to negotiate down the prices of over 250 pharmaceutical drugs each year. This would be incredibly important for many consumers, as American drug prices are four times higher compared to other countries, causing one-fourth of all Americans to commonly skip out on their medication. Nicole Rapfoegel, a writer from the Center for American Progress, finds that “reform is desperately needed. Today, pharmaceutical companies set excessive prices that they increase over time in order to maximize profits.” A report in the New York Times on April 17th of 2017 which studies comprehensive data from all 50 states from 2012 to 2017 finds that nonadherence results in over 125,000 deaths in America annually. Additionally, while some critics/Republicans forewarn that drug price caps could stifle innovation, House Democrats argue that implementing HR3 could actually benefit innovation. A Statnews report finds that big pharmaceutical companies use the majority of their profits to invest in killer acquisitions to buy out small pharmaceutical startups rather than investing in their own research and development budgets. In fact, over 81% of drugs from pharmaceutical giant Pfizer actually originate from third-party developers bought out. Thus, reducing drug profits would not affect Big Pharma’s already small budget on innovation. With mortality rates rising from America’s broken medicine industry, the implementation of this policy could mean the literal life or death for thousands of Americans annually.
Regardless of the current fierce debate over HR3, the bill is unlikely to be passed in its current form. Paul Hastings, CEO of Nkarta Therapeutics, explains that the House had “another near party-line vote in the Chamber” with Democrats voting for it and Republicans voting against it. Because the Republicans control the Senate, many analysts predict that the bill will easily be thrown out. Instead, politicians will likely make bipartisan compromises to ensure that some reforms are made in America’s dying healthcare industry. For instance, Erik Watson from Bloomberg argues that the most likely result would be to keep reforms on capping out-of-spending costs for Medicare beneficiaries in HR3, as it benefits the gray vote or America’s elderly voter population, an essential constituency both Republicans and Democrats must win. Other bipartisan agreements under Pelosi’s HR3 bill could include the measures to promote price transparency among American consumers and possible antitrust policies that restrict killer acquisitions to increase competition among existing pharmaceutical giants such as Pfizer and Johnson & Johnson. The result could benefit a large portion of America’s elderly population who see reductions in their medical expenses. Furthermore, improving price transparency and competition could still lower drug prices, but to a lesser degree, ensuring that some of the thousands of Americans can afford another night of medicine. All in all, Congress’s compromise bill over drug pricing will most likely implement some minor common-sense reforms which could further progress in increasing accessibility while still allowing companies the budget to pursue productive innovation. Unfortunately, with the 2020 presidential elections coming up, many Democrats are choosing to forego negotiations because they believe that bipartisan bill could potentially give Trump a political boost. Thus, it is likely that Congress’s fierce debate over drug pricing policy will be delayed until 2021.
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