Split Vote: Can Regulation Reform Pharma?

AMERICANS PAY SOME OF THE HIGHEST PRICES for prescription drugs in the world, but after the Martin Shkreli and Turing Pharmaceuticals price hike fiasco in early September 2015, biotechnology and pharmaceutical industries have come under fire for setting exorbitant prices for patented drugs. In the US, wholesale prices are based on the cost of competing brand-name drugs and on a drug’s performance compared to its competitors; there is little in the way of regulation. “Price gouging” by the pharmaceutical industry has been a regular talking point for US politicians for over a decade, returning to the forefront in the current election cycle as democratic candidates Hilary Clinton and Bernie Sanders have both recently put forward proposals to tackle this problem. Whether or not government regulation is the answer, it is certain that something needs to change in order to correct the regulatory failure that results in the skyrocketing costs of these life-saving medications.

Unlike the US, Canada moderates drug pricing through the Patented Medicine Prices Review Board created under the Patent Act of 1987. Introduced as a safety measure with the Free Trade Act and accountable to the Parliament through the Minister of Health, this agency has both regulatory and reporting roles, which involves regulating drugs that are still under patent and do not have generic substitutes. The board sets the price of any given drug as the median of what the drug costs in France, Italy, Sweden, Switzerland, Germany, the US and the UK. By this method, drugs in Canada are neither the cheapest nor the most expensive, but it does mean that increasing drug prices in the US will contribute to rising prices here in Canada.

The US does not have a counterpart to Canada’s Patented Medicine Prices Review Board, but there are multiple avenues the US government could take to moderate drug prices for Americans. Medicare, the US national social insurance program that provides health insurance to over 40 million Americans, has been explicitly prohibited by Congress from negotiating drug prices from pharmaceutical companies. Clinton and Sanders have put forward proposals that both involve requiring health insurers to negotiate drug prices by leveraging their massive enrollee base. These proposals may also allow Americans to buy drugs from Canada and Europe, where prices are comparatively lower.

Of course, there is considerable debate worldwide as to whether government regulation has had a negative effect on the development of innovative new drugs. Drug companies, amongst others, argue that government regulations would stifle innovation for new drugs by reducing profits and removing the incentive for investment into biotech. Another argument is that rapidly increasing drug prices only mirror the inflating cost of developing new drugs, and that the high prices are necessary to cover the cost of the lengthy and risky research and development process. Some experts maintain that increased government regulation is not the answer; rather, decreasing the government’s involvement in the drug approval process would reduce prices. For example, the convoluted drug review and approval process, combined with excessive risk adversity by the FDA, are factors that contribute to the high cost of drug development.

As it stands, the US ‘free-market’ system of drug pricing has clearly failed at controlling drug price hikes. Regulatory reform, especially regarding policies that involve the establishment of price controls, may impact on the discovery and development of new drugs, but might also be life-saving for the patients who can’t afford them otherwise. These issues are part of a global trend towards increasing prescription drug prices; finding a way to balance the seemingly conflicting needs of those who develop drugs and those who use them is a bona fide global health dilemma.