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COMMENTARY: Patients lose as states try to make drugs affordable

Colorado’s government recently announced it is targeting five medicines for price controls — the first of up to 36 drugs over the next three years. Who doesn’t want to pay less for drugs? Or anything else, for that matter?

But government actions such as this one typically backfire, and Colorado’s clumsy intervention will have little or no impact on what individual patients pay. Instead, the Prescription Drug Affordability Board — like others moving ahead in states such as Maryland, Oregon and Michigan — threatens to limit access to the best drugs for the sickest Americans.

A principle of economics is that when the government limits the price of something, companies have less incentive to make it or improve it. For instance, controls on gasoline prices in the 1970s led to shortages. The effect of state-imposed upper price limits on drug prices will be worse. Pharmaceuticals to treat and cure diseases such as Alzheimer’s could be delayed for decades. Or forever.

Price controls are widespread in Europe, and the results have not been good for patients. A study by PhRMA examined 460 new drugs developed between 2012 and 2021 to see how many were reimbursed by the public insurance plans of 32 wealthy OECD countries. The United States led with 85 percent. France, the United Kingdom and Japan reimbursed fewer than half the drugs — Canada, 21 percent. This is the future for Americans under price controls like Colorado’s.

A coalition representing 13 AIDS patient advocacy groups charged that Colorado “could upend the ability of patients with HIV and other complex conditions to access and adhere to their treatments.”

Another letter from 41 health organizations pointed to a 2020 study that found new cancer drugs “reached the market an average of 242 days later in Europe than in the U.S.”

Colorado claims it cares about “affordability,” but what it really cares about is reducing list prices, which patients don’t pay anyway. Consider Stelara, one of the state’s five targets. It treats Crohn’s disease, a terrible bowel condition. Stelara’s list price is about $13,000 a month. However, according to Colorado’s Division of Insurance, patients pay an average of less than 1 percent of that out of their own pockets. Through co-pay coupons provided by Janssen, the drug’s manufacturer, the patient cost is as little as $5 for an injection lasting eight weeks.

All of the makers of Colorado’s targeted drugs offer such coupons — in some cases reducing payments of patients to zero. An official of Gilead, which makes Genvoya, a powerful HIV/AIDS treatment that is another target, wrote that prescription data analyzed by the research firm IQVIA show that “approximately 85 percent of Genvoya claims were less than $5 in Colorado in 2022.”

Patients are alarmed at what is happening. A CBS News report highlighted a woman whose life improved dramatically after taking the cystic fibrosis drug Trikafta, one of the five medicines. “She now runs and hikes in the thin Colorado air and works a full-time job,” the report said. But she worries that price controls may lead Vertex, the company that makes Trikafta, to take it off the market as unprofitable. “People are scared,” the woman said.

A longer-term worry is that the price controls — including those ordered by a similar federal effort in the Inflation Reduction Act that will affect 60 drugs in the first four years alone — will deter pharmaceutical manufacturers from investing the $2.3 billion necessary to develop a new medicine. In a recent paper, economist Tomas Philipson and his University of Chicago colleague Troy Durie estimated that the the federal act’s price controls will lead to 135 fewer new drugs by 2039.

The big winners in Colorado are the most profitable players in health care: the middlemen that The Economist magazine recently labeled “big health” — not pharmaceutical manufacturers but insurers and pharmacy benefit managers “sitting between patients and their treatments.”

If patient affordability is truly the goal, then Colorado should change the rules to limit the out-of-pocket payments that insurers require. The Inflation Reduction Act did that. It set an out-of-pocket cap of $2,000 a year for Medicare recipients. But, the Affordable Care Act has an annual limit of $9,100 for Americans with commercial plans.

Congress — or, better yet, moral suasion — could force insurance companies to lower that cap and require them to cut co-pays and coinsurance for patients who need specialty medicines for HIV, cancer and other serious conditions.

By contrast, the Colorado PDAB and other boards take an approach that may appear attractive to politicians in the short term, but blowback is inevitable. The public will soon realize that insurers, not patients, are the winners when governments, not doctors, determine who will get the best medicine.

James K. Glassman, a visiting fellow at the American Enterprise Institute, was undersecretary of state for public diplomacy and public affairs in 2008-09. He wrote this for InsideSources.com.

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