Direct Negotiation for Prescription Drugs Will Chase Jobs and Cures Out of the United States

“Direct negotiation” is the term the White House and some members of Congress are using to legitimize government price-setting for prescription drugs in the Medicare program and private insurance plans. While negotiation usually implies give-and-take bargaining, the two proposals being discussed in Congress are “take it or leave it” strategies.

The “Elijah E. Cummings Lower Drug Costs Now Act” (H.R.3) proposes “international reference pricing,” which would give the government authority to set foreign price controls on 250 prescription medicines in Medicare Part B and Part D. Specifically, the bill will impose foreign price controls based on the volume-weighted average of drug prices in Australia, Canada, France, Germany, Japan and the United Kingdom. It would also extend the prices to insurers and the commercial market at large.

Proponents of this policy often argue that patients in foreign countries pay substantially less for drugs than we do in the United States. While that may be true, their citizens also experience delays and reduced access to new medical treatments. In the United States, we have access to nearly 90 percent of new medicines, while developed countries with price control mechanisms have access to only 47 percent.

How does this discrepancy play out in real life? Consider a January 2021 Politico article on the COVID-19 vaccine rollout in the European Union. It found that “a vaccine strategy that was supposed to be a forceful show of European solidarity, an assertion of the single market’s buying power” actually “resulted in a rollout that has left the EU lagging behind.”

In addition to patient access issues, international reference pricing policies could severely stunt medical innovation. That’s not to mention the countless new therapeutic programs that will be dissuaded from starting up because of the bill.

If President Joe Biden and congressional supporters are successful, the U.S. biopharmaceutical sector is likely to cede its $1 trillion business — including over 4.5 million jobs — to China and other countries.

This is not conjecture. According to research by Arthur Daemmrich, director of the Lemelson Center for the Study of Invention and Innovation at the Smithsonian Institution, it was only a few decades ago that Europe ceded its innovation leadership role to the United States: “Studies of the industry have attributed this sustained competitive advantage to a variety of factors, including…the absence of government controls on drug prices.”

A second price-setting policy strategy is anticipated to be introduced soon by the Senate Finance Committee and is rumored to give a nongovernment entity, such as the Institute of Clinical and Economic Review, authority to recommend drug prices that Medicare and private insurance companies would adopt. ICER is an organization purportedly dedicated to creating cost analysis reports to inform “policy decisions that lead to a more effective, efficient, and just health care system.”

However, the methodology underlying ICER’s analyses has repeatedly been shown to discriminate against people with disabilities and older adults. Rather than paying for value, the analyses instead provide a rationale for insurance companies to deny patients access to medications.

The public gets it. According to the Kaiser Family Foundation, 65 percent of Americans oppose negotiation if it could lead to less research and development of new treatments or limit people’s access to medicines once they come to market. These misguided proposals would do both.

If we want to preserve our nation’s first-in-line access to safe and effective COVID-19 vaccines, as well as breakthrough therapies in areas of high need such as cancer and rare diseases, then we need a different approach. In 2020, the Office of the U.S. Trade Representative, reported on lax U.S. enforcement of biopharmaceutical intellectual property protections in trade agreements, as well as limitations on global market access of new therapies. Perhaps our new U.S. trade representative, Katherine Tai, should work with the White House and congressional leaders to address these long-standing trade issues.

Let’s use real negotiation to address drug pricing, at home and abroad.


Sue Peschin, MHS, is president and CEO of the Alliance for Aging Research in Washington, D.C.

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