(Bloomberg Opinion) -- One of the few things Democrats and Republicans can agree on these days is that drug prices are out of control. A recent study quantifies the absurdity: U.S. drug costs are almost four times higher than the average in 11 similar countries.
What to do about it, of course, is the hard part. But there are signs of a bipartisan consensus forming.
The most logical first step is to give the government power to negotiate on behalf of the 45 million Medicare prescription beneficiaries, and to use average international drug prices as a ceiling. That’s what House Speaker Nancy Pelosi is suggesting in a plan she recently introduced, and what President Donald Trump has also said he favors. Such a reform would mean prices more accurately reflect a drug’s true value — and could lead to savings of $49 billion annually just on Medicare prescriptions, not to mention a significant reduction in insurance premiums.
Pelosi’s proposal would offer other benefits besides. It includes a stiff fine for drug companies that won’t negotiate, which is a simpler and more easily enforceable penalty than earlier versions had envisioned. It would also extend the negotiated prices to everyone, not just Medicare participants, which should prevent companies from gouging the private market to make up for lost revenue.
Another useful provision would limit drug-price increases to the rate of inflation. That’s something the speaker and some Republican senators can agree on. A bipartisan plan hatched by the Senate Finance Committee includes a similar provision. Clearly it’s needed: For the 12th year in a row, the retail price of prescription drugs commonly used by seniors has increased faster than the general inflation rate.
That said, the plan isn’t perfect. Some key details — such as how many drugs should be subject to the price index, and what the grounds would be for inclusion — need to be ironed out. There’s also the risk that such an index could lead to a circular effect, with countries basing prices more on what their neighbors are doing than on the true value of the drugs.
But the goal of getting U.S. prices in line with global norms is surely right: Why should Americans pay for 70% of global biopharmaceutical profits when they account for only half of the world market?
The drug industry says subjecting U.S. prices to international caps will stifle innovation and prevent investors from taking chances on important drugs. As Health and Human Services Secretary Alex Azar has said, those are “tired talking points” that generally don’t reflect reality. Studies have shown that when drug prices increase, the additional money doesn’t necessarily go toward research and development. In fact, drug companies on average spend less than 25 percent of their revenue on R&D. More to the point, companies that don’t innovate won’t be around for very long.
The fact is, the current system is failing. At an otherwise polarized moment in Washington, controlling drug prices is an issue that can command rare bipartisan support. It’s an opportunity America can’t afford to miss.
Editorials are written by the Bloomberg Opinion editorial board.
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