Progressive Fixation on Drug Pricing will Impede Progress
By Sally C. Pipes
The recent pace of drug development in America is nothing short of breathtaking.
Within the last few years, drug companies have delivered effective therapies for COVID-19, cancer, Alzheimer's, diabetes, and obesity. Between 2010 and 2019, the Food and Drug Administration approved an average of 38 new drugs per year -- 60% more than the annual average during the previous decade, according to the Congressional Budget Office.
And yet, progressives assert that prescription drugs are our biggest health policy challenge. Sen. Bernie Sanders, I-Vt., for example, has stated that he will oppose any and all of President Biden's health nominees until the administration puts forth a public plan to reduce "outrageously high" prescription drug prices.
But prescription drug spending is a relatively small portion of our nation's healthcare bill. If anything, it should be higher, given that prescription drugs can obviate the need for much more expensive hospitalizations, surgeries, and long-term care.
The progressive war on drug prices isn't new, but it took a great leap forward with the Inflation Reduction Act, signed into law by President Biden in August 2022, which will result in price controls on a growing list of brand-name medicines starting in 2026.
This fixation on prescription drug spending is misguided. In 2021, retail prescription drug spending totaled $378 billion. Overall healthcare expenditures reached $4.3 trillion that year.
In other words, retail prescription drug spending represents less than 9% of total healthcare spending.
A Manhattan Institute brief found that just 0.4% of U.S. household spending went toward out-of-pocket prescription drug costs -- a lower rate than in any other developed country.
And yet, we have access to more innovative drugs than our foreign peers. According to research from the Galen Institute, 89% of the 290 drugs developed between 2011 and 2018 were available in the United States as of 2019. By contrast, just 62% were available in Germany, 48% in France, and 44% in Canada.
Most of America's healthcare dollars go to pay hospitals and physicians. As of 2021, the two categories account for 51% of personal health expenditures.
Cumulative spending on dental services, home health care, and nursing care facilities is higher than our nation's retail prescription drug bill.
Greater than the cost of prescription drugs is the cost of stifling innovation. Price controls will reduce the supply of new medicines, as investors lose confidence in their ability to earn a return from funding risky, expensive development projects.
Effective therapies that are never invented have a cost, too, in the form of lives cut short or years of good health sapped by the progression of disease.
And there's an economic cost associated with failing to alleviate or cure disease. One study found that newer drugs, despite their higher sticker price, result in a decrease in total health expenditures by limiting the need for spending in other areas.
In short, the progressive view that prescription drug prices are bankrupting our nation is not only false but dangerous -- because it threatens the medical and economic benefits that pharmaceutical advances bring.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on Twitter @sallypipes.
