Less than 18 months after Democrats rammed through a series of price controls on what Medicare pays for prescription drugs — the better to pay for Tesla subsidies and other green pork — and guess what has happened? Drugmakers are responding to the (bad) incentives Democrats created.
Just before the holidays, Bloomberg reported on how many pharmaceutical companies have delayed bringing products to market to maximize the revenue they can generate before Medicare gets to “negotiate” drug prices. It demonstrates the ultimate losers from the entire “negotiation” process: patients who need life-enhancing, or even life-saving, new treatments.
Drug Delays
The Bloomberg story didn’t mince words in its lead paragraphs:
Drugmakers are slow-walking products to market to get around President Joe Biden’s plan to lower medication prices. … Firms that normally try to sell drugs as soon as possible are suspending clinical trials and shifting timelines, while patient groups are demanding change. … [Companies are] moving to maximize drugs’ revenue potential, even if it means patients will have to wait longer for new therapies.
As the article explains, companies have a limited number of years — nine for small-molecule pills, and 13 for large-molecule biologic products — to market their products before the “negotiation” process kicks in. As any rational actor would, the companies are trying to maximize the amount of revenue they receive during that finite period.
As a result, companies whose drugs could treat multiple medical conditions, such as different types of cancer, have strong incentives to get the drug approved for the broadest possible condition first. That way, they can generate the greatest amount of revenue before the nine- or 13-year clock to “negotiation” expires.
One of the examples Bloomberg cited: Roche executives say they may delay seeking approval for a new drug to treat ovarian cancer, which afflicts 20,000 Americans each year, until the drug gets approved for prostate cancer, which afflicts 300,000 annually. If Roche follows through, Bloomberg notes the strategy could delay the potential ovarian cancer treatment’s availability by three years.
To put it more bluntly, the 60,000 patients diagnosed with ovarian cancer over those three years could be out of luck for finding a treatment for their disease, all thanks to President Biden and congressional Democrats.
Responding to Incentives
The likeliest victims of this new pharmaceutical squeeze are patients with more obscure diseases and cancers that affect only a few thousand patients each year. If a pharmaceutical company has the choice between getting a drug’s first approval for a condition that affects a few thousand people or a few million, which do you think it will choose?
Bloomberg also notes that while drugs that treat one rare disease have an exemption from drug “negotiations” under the law, drugs that treat two rare diseases do not. This provision will discourage companies from submitting approvals for a second rare disease, again disadvantaging patients with lesser-known conditions.
These types of adverse consequences were entirely predictable. In addition to discussing the dynamic explored in the Bloomberg story, a November Health Affairs blog post laid out another possible harm: poorer quality medical research.
Because of the limited time to maximize revenue before “negotiation” kicks in, drug companies will have less incentive to engage in long-term studies of their products. Such studies could focus on ultimate outcomes (e.g., mortality) rather than intermediate endpoints (e.g., control of a diabetic’s blood sugar).
Government Is the Problem
Bloomberg quoted an AARP representative as calling drugmakers’ actions “frankly reprehensible.” That seems more than a bit rich, seeing as AARP makes most of its money by overcharging seniors for insurance through secretive means and discriminating against people with preexisting conditions to do so. Doubtless Democrats will argue that they can enact new laws and regulations to remedy the problem their last “solution” caused.
But the socialist left ignores that no law requires companies to invest in new drugs at all — they only do so because it makes financial sense. If it does not, then companies may invest in cloud computing technology, driverless cars, or many other types of projects instead.
This may come as a shock to progressives who spend their entire careers “working” for government, but no one has a God-given right to have someone create “free” new treatments for their disease. Ironically, the more Democrats believe in that theory and continue down the price-control pathway, the fewer treatments will be developed.