Whenever the spotlight falls on an expensive drug, some policymakers will point to drug re-importation as a potential solution: If a drug is too expensive here, let patients import them from Canada, where drug prices are much lower.
In America, importation can be the last resort for patients burdened by high drug prices. But in countries around the world, it may be the only way a patient can access lifesaving drugs that have not been cleared for use, or whose government-run health system may simply refuse to cover.
America’s drug pricing problem is different from Europe’s, but they both stem from overregulation. Wherever the government interferes with a market, we see a decrease in choice and innovation, and an increase in prices. Competition, spurred by a restoration of free markets, is the key to providing relief for patients at home and abroad.
Markets keep prices low by encouraging innovation and competition. When there are several competing products on the shelves, to stay competitive, companies need to improve their products while cutting prices. This is why, almost four decades after the first laptop was released with a price tag of almost $2,000, you can walk into a Best Buy and choose between 15 laptops that fit your needs and cost less than $500.
We call this a “free market” for a reason. Companies are free to set their prices, while customers are free to shop for value. Call it what you want – supply and demand, the invisible hand – these are the basic principles we allow to govern every aspect of our economy.
Unfortunately, we have not had a true market for pharmaceuticals in many years. Our convoluted insurance system has obscured the true cost of drugs so much that no one knows what they’re paying for. Middlemen like pharmacy benefit managers take advantage of this obscurity to demand a part of the profit, causing pharmaceutical companies to increase the price of a drug.
This is why we hear stories of uninsured patients facing exorbitantly high drug prices. Still, things aren’t as bad as they are in Europe – a point that’s lost on politicians who think the way to lower drug prices is by instituting price controls. As we’ve already seen, not only will regulation fail to solve our problem, it will lead to a slew of other problems for innovation and access.
Fortunately, there are a few simple ways to harness the power of competition to bring prices down.
First, increase the amount of generic drugs on the market. Not only are generics cheaper – in 2016, patients paid an average $5.54 out of pocket for generic drugs, versus $28.31 for branded equivalents – but they also drive down prices across the board. The second generic on the market usually costs half as much as the branded equivalent.
The more low-cost generics exist, the more prices fall, even for branded drugs. The FDA should stick with the generic drugs approach it adopted under Commissioner Scott Gottlieb, expediting generic drug approvals while policing the actions of branded drug manufacturers who game the patent system and maintain market exclusivity.
Next, we need to empower patients to shop for value. With the true price of drugs so obscured, it’s impossible for patients to act as shoppers. Congress should pass a law mandating all net prices for drugs be posted at the point of sale. That way, patients can seek out the best deal for their medicines and jump-start the stalled pharmaceutical market.
Finally, we need to address the problem of international free riders. American drugs are cheaper in Canada and Europe because their governments are the sole purchasers of drugs in their countries – they basically set their price. President Trump says he wants to be tough on trade, and he wants to lower drug prices. Striking a deal that spreads the cost of these drugs evenly across patients worldwide would be a step in the right direction on both fronts.
It’s no secret that competition is the key to balancing cost, access, and innovation. When making reforms, we ought to remember that the free market is behind what works in our system, and take steps to support it, rather than stamping it out.
Dr. Tom Coburn is the Nick Ohnell Fellow at the Manhattan Institute and a former two-term U.S. Senator from Oklahoma.
