Washington lawmakers believe they’ve found a bipartisan solution to lowering the cost of prescription drugs. A proposal called “binding arbitration” is being promoted by House Speaker Nancy Pelosi’s top advisers, who reportedly believe the Trump administration will be on board.
Let’s hope the measure doesn’t gain steam. Binding arbitration — essentially government price controls — would be catastrophic for patients. It would undercut medical innovation and bar American patients from accessing innovative treatments.
Binding arbitration was first floated by leftist health policy experts in 2008. More recently, a handful of congressional Democrats, and even the Medicare Payment Advisory Commission (MedPAC), have voiced support for the scheme.
Binding arbitration would impact drug pricing negotiations between manufacturers and government-sponsored insurance plans, like Medicare. Currently, these parties work directly to settle price points for prescription medications.
But sometimes the government and drug makers don’t agree on a price tag. And should these two parties reach an impasse, government officials could trigger the arbitration process.
It works like this: The government appoints a neutral, third-party arbitrator to settle the dispute. Drug makers and the government would each make the case for their preferred prices to the arbitrator. And after considering arguments from both sides, the arbitrator would set the drug’s price, which would be legally binding.
This might sound like a fair negotiation. But arbitrators are far from the neutral mediators they’re made out to be.
For starters, arbitrators aren’t accountable to the public. Indeed, they are unelected officials given exorbitant authority to set drug prices — all without having to own the consequences of their decisions if something goes wrong. This imbalance of power is worrisome.
Just as problematic, however, is that arbitration is really just a front for government price controls. The government has the power to appoint arbitrators without any input from drug companies. This means officials would almost certainly choose policy wonks who already agree with their drug pricing philosophies.
Put differently, the government always comes out on top. And instead of capping drug prices directly, the government merely appoints someone else to do their bidding. That’s far from fair.
Price controls in any form pose a grave risk to patients. Consider that it takes an average $2.6 billion and 10 to 15 years to create a single new medicine. Investors undertake risky projects knowing they can recoup their upfront costs on the rare chance they successfully bring a new cure to market.
But price controls all but ensure that investors never profit. The government would undercut innovators by low-balling new medicines — no matter how much money or time went into creating them. So investors would hemorrhage large sums of cash in every research project. And as the model becomes unstainable, investors will wisely funnel their money elsewhere.
Less money flowing into pharmaceutical R&D means fewer new medicines for American patients. There are currently 4,000 drugs in development in the United States — that accounts for more than half of the drugs being researched and created worldwide. Unfortunately, patients may never benefit from these cures if the development pipeline dries up.
That’s terrible news for Americans suffering from chronic diseases. Today, 60 percent of the United States’ adult population has one chronic condition. Forty percent have two or more. That makes chronic disease the leading cause of death and disability in America — costing our health sector more than $3.3 trillion each year.
America can’t afford for the government to stomp out medical innovation. But that’s exactly what would happen with binding arbitration policies. For the sake of patients, let’s hope lawmakers on both sides of the aisle abandon the proposal immediately.
• Peter J. Pitts, a former Food and Drug Administration associate commissioner, is president of the Center for Medicine in the Public Interest.