International Reference Pricing Would Harm American Patients, Workers, and the Healthcare System

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Posted by Alex Hendrie on Thursday, April 15th, 2021, 9:00 AM PERMALINK

President Joe Biden is expected to release a “human infrastructure” plan in the coming weeks that spends as much as $2 trillion. This proposal will likely include new tax increases and foreign price controls on American medicines that will harm patients, manufacturers, and the American healthcare system.

House Democrat lawmakers want to include H.R. 3, “the Lower Drug Costs Now Act,” legislation they pushed last Congress that would impose international reference pricing. This policy will set U.S. prices based off the prices in six countries - Australia, Canada, the United Kingdom, France, Germany, and Japan. These price controls are enforced by a 95 percent excise tax on medicines.

If included into the Biden infrastructure plan, international reference pricing would lead to healthcare shortages, threaten American jobs, and crush medical innovation.

Foreign countries have significant healthcare shortages. These countries utilize socialist price controls on their healthcare systems. Because there is no way to compete on price, supply is reduced, which means reduced access to care for citizens in these countries.

For instance, Canadian patients wait an average of 19.8 weeks from referral to treatment. By comparison, 77 percent of Americans are treated within four weeks of referral, while just 6 percent wait more than two months.

At any one time. one million Canadians are waiting for treatment according to some estimates.

In the UK, there was a shortage of 10,000 doctors and 43,000 nurses in 2019, with 9 in 10 managers in the National Health Service saying that too few doctors and nurses presented a danger to patients. At any one time, 4.5 million patients were waiting to see a doctor or receive care.

France has been forced to make significant spending cuts to its “free” socialist healthcare system and there have been significant shortages of basic supplies. Australia has also experienced problems with shortages of medicines, and healthcare professionals.

Adopting foreign price controls will create the same problems that foreign healthcare systems suffer from. It will lead to less medical innovation leading to fewer cures and healthcare shortages for American patients.

According to research by the Galen Institute, 290 new medical substances were launched worldwide between 2011 and 2018. The U.S. had access to 90 percent of these cures, a rate far greater than comparable foreign countries. By comparison, the United Kingdom had access to 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent.

Price controls utilized by Europe delayed new drugs coming to market by an average of 14 months.

Reference pricing will threaten the development of new medicines. As it stands, developing new medicines is a time consuming and expensive process, as noted by the Congressional Budget Office. It takes up to $2 billion and ten years to develop new medicines and only 12 percent of drugs that enter clinical trials ultimately make it onto the market.  Manufacturers make this steep investment knowing they will be able to recoup the extensive costs involved.

Costs for developing new medicines includes laboratory research and clinical trials of drugs as well as expenditures on medicines that that do not make it past these stages. The clinical development and approval times alone average 90.3 months for a pharmaceutical drug and 97.3 months for a biologic.

Because of the steep investments required, research and development spending averaged 25 percent of net pharmaceutical revenues in 2018 and 2019, totaling roughly $80 billion each year.

Not only does this investment make the U.S. a world leader in medical innovation, but it also ensures we have high paying manufacturing jobs. Nationwide, the pharmaceutical industry directly or indirectly accounts for over four million jobs across the U.S and in every state, according to research by TEconomy Partners, LLC. This includes 800,000 direct jobs, 1.4 million indirect jobs, and 1.8 million induced jobs, which include retail and service jobs that are supported by spending from pharmaceutical workers and suppliers.

The average annual wage of a pharmaceutical employee in 2017 was $126,587, which is more than double the average private sector wage of $60,000. President Biden has repeatedly promised to create millions of new high paying manufacturing jobs in America. He must ensure that his policies do not cause the loss of existing jobs.

Adopting foreign price controls through an international reference pricing plan would harm American patients, workers, and the healthcare system. This policy has no place in Biden’s infrastructure bill and should be rejected by lawmakers.

Photo Credit: Darko Stojanovic

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