Recent reports describe a proposal known as “binding arbitration” as a would-be middle ground, a possible compromise between Congress and the Trump administration on addressing prescription drug costs.
But as a Democrat who supported the Affordable Care Act and worked on many bipartisan measures while representing the state of Arkansas, I feel qualified to say: binding arbitration for drug pricing is far from “moderate,” but instead a form of price setting that could do significant harm to the quality of care Americans receive.
In binding arbitration, the government convenes a panel that decides what the price of a drug should be, and drug makers are required to sell at that price going forward. The unelected panel would have full discretion to set prices that they deem are reasonable with no accountability to the American people, including millions of patients seeking access to treatments that would be put at risk by this pricing mechanism.
If a top-down, command and control approach sounds like a good idea, ask yourself why we don’t convene such “arbitration” panels to set the price for cars, houses or groceries? A price set by a government-established panel is not the way our free market system normally operates, where buyers and sellers are free to participate, or not, at willingly agreed to rates.
But put aside economic theory, do citizens of single-payer nations have better access to drugs than Americans? The data says no. For instance, in Germany, often cited as a model of binding arbitration, patients have access to only 71 percent of new cancer medicines, compared to 96 percent for Americans, and patients face average treatment delays of 11 months versus three months in the United States. A broader review of many countries found an average 17-month lag between when drugs become available in the United States and other nations. For millions of cancer patients with survival hanging in the balance, waiting additional months for a treatment that will extend or even save their lives is a cruel outcome of government interference.
Broadly speaking, arbitration emphasizes cost to the government in the short-term over other priorities like drug innovation, quality of patient care and long-term savings.
Proponents often tout that binding arbitration could be targeted at drugs without any competitors. But the vast majority of drugs without competitors are brand new, and sometimes are the only effective treatment available to patients. This is worth keeping in mind when evaluating how binding arbitration would warp the incentive structure of the drug market, penalizing innovation and stemming the rate of investment in crucial research.
This effect would be compounded because, for many reasons, the U.S. drug market is, by far, one of the world’s most important drug markets, driving innovation for the rest of the world. One reason it’s so important is that most new medicines are brought to market by American companies — the share of new drugs invented by U.S. firms far outweighs our relative population or even our GDP.
Another is the quality of care. Our health care system isn’t perfect, but there’s also a reason people travel from all over the world to be treated in American hospitals. Late last year, a 9-year-old Canadian boy with cancer traveled 700 miles to Seattle for groundbreaking treatment. By the time the treatment goes through an onerous approval and pricing process in his home country, it could be too late to save his life.
Other nations have taken a different path, generally sacrificing access to and quality of care as a means of keeping their single-payer programs more affordable. Another example, Bloomberg news recently reported that families in England are moving to Scotland and Ireland to access a new cystic fibrosis drug for their children. Bloomberg described the trade-offs this way: “In financially-constrained England, when confronted with a pharmaceutical company such as Boston-based Vertex seeking to recoup billions of dollars to develop a new drug, the answer is sometimes brutally simple: almost no one gets the medicine.”
American families should not be put in the position of having their loved ones’ treatment and even survival at the mercy of a binding arbitration panel, which will delay access to drugs in the short-term and hinder research and development of new treatments over time.
A better approach to lowering prescription drug costs is to increase competition by streamlining the FDA approval process and improving access to biosimilars, drugs that reports show are safe and effective options that could help lower costs. Now is the time to have this important discussion and to work in a bipartisan fashion to find solutions that can increase competition and lower costs, without diminishing the market incentives that drive life-saving medical innovations.
