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Azar’s crackdown on foreign freeloading misses the mark

March 21, 2019

President Trump promised he’d work to reduce prescription drug prices. Thus far, he’s been a man of his word.

The president has proposed capping out-of-pocket costs for seniors, offering free generic drugs to certain low-income Medicare beneficiaries, and even targeting middlemen in the drug supply chain that pocket savings instead of passing them onto patients.

In a recent speech, the president took aim at a related problem: ending the “global freeloading” that has forced Americans to subsidize drugs in foreign countries.

Unfortunately, Department of Health and Human Services Secretary Alex Azar cooked up a plan that would reward these freeloaders rather than punish them. If implemented, it would deny Americans access to critical treatments and discourage future medical innovation.

Sec. Azar’s proposal impacts Medicare Part B, which pays for advanced cancer treatments and injectable drugs to treat complex chronic conditions. On average, these drugs cost about 80 percent more in the United States than in other industrialized countries.

There’s a simple explanation why these drugs are cheaper abroad. Many developed nations with government-run health systems won’t cover medications unless drug companies offer massive discounts. Some even threaten to steal drug companies’ patents. They essentially hold American drug firms hostage and give them no choice but to sell at a below-market price.

Some companies cave in to this bullying. And some don’t — which means their products aren’t available to patients in those nations. Consider that 88 percent of all medications approved worldwide between 2011 and 2018 are available in the United States. That’s compared to just 66 percent in the United Kingdom, 49 percent in Canada, and 24 percent in Portugal.

Sec. Azar wants to copy other nations’ bullying tactics. He has proposed an “international pricing index,” which would set Medicare Part B drug reimbursements based on the average sales prices in 14 nations, most of which are in Europe.

Importing socialist price controls would inevitably restrict which medicines patients can access. Consider that 95 percent of new cancer medications are available in the United States, but just over half are available in the 14 reference countries included in the international pricing index.

The proposal would also discourage long-term drug development.

Pharmaceutical innovation is expensive. On average, it takes over $2.6 billion and a decade to create a new drug. Just 12 percent of drugs entering clinical trials successfully make it to market. Companies are only willing to take the plunge into this risky investment with the promise of worthwhile profits.

Less research means fewer breakthrough drugs will come to market. If America caves in and implements socialist price controls, the entire world may lose hope of ever seeing a cure for Alzheimer’s, Parkinson’s, and other fatal diseases.

President Trump is right to call out foreign freeloading. But the solution to the problem isn’t price controls. Sec. Azar’s policy would stifle life-saving drug innovation and harm patients.

Andrew Langer is president of the Institute for Liberty.