The pharmaceutical industry says that if the U.S. reduces the astronomical drug prices paid by U.S. consumers, lifesaving innovation will be devastated.
That’s not true. There are ways for the U.S. to reduce drug prices while maintaining and perhaps even accelerating its innovation engine.
In recent decades, the United States has largely privatized its biomedical research and development not by intention but by default. A Research!America analysis shows that private industry accounted for two-thirds of the $194 billion spent on biomedical R&D in the U.S. in 2018, when the analysis was completed, while spending by the federal government comprised just 22%, most of which came from the $37 billion funded by the National Institutes of Health.
The private sector dominates biomedical R&D in the U.S. for two reasons.
One is that Congress tightly controls yearly appropriations for the NIH, with the result that it funds only a fraction of the grant applications it receives.
Take the National Institute of Allergy and Infectious Diseases, led by Anthony Fauci, which is the beating heart of work to combat the Covid-19 pandemic and other infectious diseases. This year, it is funding only about one-sixth of the applications it received from researchers who are trying to fight the vast array of potential infectious threats to Americans: Covid-19, to be sure, but also Zika, dengue fever, novel influenza viruses, Ebola, antibiotic-resistant superbugs, and more.
The second reason is that companies have the money to spend. Congress has granted private industry virtually free rein in setting drug prices, resulting in huge profits. Because of federal patent protections and grants of exclusivity, many drugs in the U.S. face virtually no price competition for decades after they come on the market. Industry has even devised ingenious ways, through constructing so-called patent thickets, to delay the entry of competitors well beyond when patents should have expired.
And consolidation among generic drug companies has reduced competition in that sector.
There’s nothing wrong with strong R&D funding by the biopharmaceutical industry. To the contrary, I believe that it is essential for having a vibrant health care sector.
But the balance in the U.S. between public and private funding for R&D is off-kilter.
Public funding is the primary engine for genuine scientific breakthroughs that industry ultimately brings to market. In fact, industry biomedical R&D depends on federal funding of research by those working in universities, nonprofit hospitals, and research institutes to generate the novel ideas that have the potential to conquer — with industry help — the nation’s major killers and cripplers.
Take the story behind one of the most remarkable biomedical advances in human history: the mRNA vaccine, which most people now know as “Moderna” or “Pfizer.” The work that made this vaccine possible occurred over decades at Vanderbilt University, Massachusetts Institute of Technology, the University of Pennsylvania, and the NIH itself, mostly funded with federal dollars. No NIH funding, no mRNA vaccine.
Here’s the lurking question: How many more mRNA-like breakthroughs would be possible if the National Institute of Allergy and Infectious Diseases funded one-third or one-half of its grant applications, rather than just one-sixth?
The NIH is more likely to tackle important research that is financially unappealing to industry because markets for applications might seem small or target economically disadvantaged populations. Pharma companies are not pursuing them because they aren’t likely to be profitable, but that won’t stop the NIH. And it is not uncommon for financially unappealing problems to yield fundamental biologic insights that transform health care forever.
How can this imbalance be corrected and more publicly funded R&D be supported? By having Medicare pay less for prescription drugs and using those savings to fund NIH research.
Here’s one way this might work. The Elijah E. Cummings Lower Drug Costs Now Act (H.R 3), which passed in the House of Representatives, would give the federal government new authority to negotiate Medicare drug prices for commonly used pharmaceuticals. This is expected to save about $500 billion over 10 years. The proposed law would direct to the NIH almost $8 billion over 10 years. It’s just a down payment on what’s needed, but it’s a start.
In addition to providing additional public funding for research, reining in high prescription drug prices would provide much-needed financial relief to Americans who would pay less for their medications.
U.S. drug prices are currently unsustainable. Americans pay multiples of what citizens of other countries pay for medications, forcing some to incur crippling debt or forgo needed medications. It also contributes to soaring premiums that make insurance unaffordable for tens of millions of Americans.
Concerns that cutting industry profits would harm sustained innovation and the future health of Americans would be offset by increasing federal research funding leading to more truly decisive scientific breakthroughs.
Industry avoids essential basic research because it doesn’t yield short-term profits. But once publicly funded innovations are far enough along, industry can develop them to make fundamental advances in human health.
The U.S. needs an optimal balance of public and private research, and responsible management of health care dollars. By directing funds saved through reduced drugs prices to NIH and other public research investments, we can achieve all of these things while also making industry investment in research more efficient and productive, giving it better ideas to commercialize and curbing what we spend on prescription drugs.
David Blumenthal is a physician and the president of The Commonwealth Fund.