The Public Policy

Pharma Follies

The leading presidential candidates have the wrong prescriptions for confronting drug prices.

By 2.12.08

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No matter who wins this year's presidential election, the political class is set to make a loser out of the pharmaceutical industry. Just as repealing the Bush tax cuts is now seen as an all-purpose revenue generator for bigger government, would-be health care reformers often propose to squeeze the money for their big plans out of drug companies' profits.

Unlike raising taxes, railing against drug manufacturers is a win-win proposition at the ballot box. "Big Pharma" isn't a sympathetic character in political morality tales, where companies like Merck are portrayed as heartless profiteers who keep prescriptions drugs unaffordable to legions of sick Americans. Enumerating the downsides of price controls merely makes one look like a defender of a flawed health care system.

"I've taken on the drug companies," Hillary Clinton boasts on the stump. "I've taken on the insurance companies. I've taken on the oil companies, and I'm going to keep doing it." Barack Obama vows on his campaign website to "prevent companies from abusing their monopoly power through unjustified price increases." Who decides what's unjustified? Price-fixing bureaucrats, because "[p]harmaceutical companies are selling the exact same drugs in Europe and Canada but charging Americans more than double the price."

The Republican frontrunner uses similar rhetoric. Like Clinton and Obama, probable GOP nominee John McCain wants to let Medicare "negotiate" drug prices directly (one of the reasons he voted against the government-expanding prescription drug benefit is that it did not contain this power). He also shares their support for drug re-importation. Challenged by erstwhile rival Mitt Romney not to make pharmaceutical producers sound like "big bad guys," McCain shot back, "Well, they are."

With the federal government now buying a growing share of the nation's pharmaceuticals through Medicare Part D, the reforms Clinton and McCain propose would exert huge pressure on drug prices. But it all comes at a cost: It is expensive to bring new drugs to market and these regulations would seriously dampen research and development (R&D) spending and keep new medicines from ever being developed in the first place. Such spending exploded from $2 billion in 1980 to over $30 billion annually in 2002.

In a 2005 study, Doug Bandow concluded, "Applying these controls to Medicare purchasing would eliminate approximately 40 percent of all future pharmaceutical R&D and cost another 277 million life-years. That's like saying that everyone currently under age 65 should die one year sooner so seniors can save some money on their drug bills."

Bringing each new drug to market costs an average of $800 million and may take between a dozen and fifteen years to complete. Nearly 80 percent of the experimental drugs will fail. Without the prospect of reaping a windfall, companies won't tie up so much capital in a process where successes are rare.

Consider: If drug prices had been linked to the consumer price index for the past three decades, the researchers John Vernon, Carmelo Giaccotto, and Rexford Santerre concluded that a third of industry R&D expenditures would simply have vanished -- and along with it, over 300 new drugs delivered to patients during that time period.

Right now, companies are experimenting with new drugs to treat cancer, Alzheimer's disease, and AIDS. If onerous regulations cut into their R&D, how many of these potentially life-saving drugs may never come to fruition?

That's the question the leading presidential candidates in both parties don't want to answer -- and don't want the voters to ask. But the bipartisan pharma-bashing is pitting health care reform against quality health care.

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About the Author

W. James Antle III, author of the new book Devouring Freedom: Can Big Government Ever Be Stopped?, is editor of the Daily Caller News Foundation and a senior editor of The American Spectator. You can follow him on Twitter @jimantle.