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 Speaker Pelosi's top advisors, who reportedly believe the Trump administration will be on board.
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. 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.
But arbitrators are far from the neutral mediators they're made out to be.
For starters, arbitrators aren't accountable to the public. They are unelected officials given exorbitant authority to set drug prices.
Just as problematic, arbitration is really just a front for government price controls. The government has the power to appoint arbitrators without any input from drug companies.
Put differently, instead of capping drug prices directly, the government merely appoints someone else to do their bidding.
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.
Price controls all but ensure that investors never profit. The government would undercut innovators by lowballing new medicines. 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.
That's terrible news for Americans suffering from chronic diseases. Today, sixty 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.
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.
