Government negotiation works — COVID vaccines are proof
The United States is awash in COVID-19 vaccines – so much, in fact, that mass vaccination sites around the country are shutting down as demand for the shots begins to wane.
Our European friends haven’t been so fortunate.
European countries have long negotiated the prices of their medicines — an approach that results in their citizens paying far less than what Americans pay for the exact same drugs. A recent analysis by the Government Accountability Office found that Americans pay on average four times more for their drugs than the French, who negotiate their drug prices.
But in an unusual reversal of roles during the pandemic, the United States aggressively pursued a strategy to buy vaccines in bulk at negotiated rates. The federal government underwrote the cost of production, manufacturing and distribution, and snapped up vaccines in a move that guaranteed sales for pharmaceutical companies and removed most financial risk to them.
The decision has resulted in the distribution of 279.4 million shots and counting in a few short months, allowing families to reunite, schools to consider reopening, and the economic engine to chug back to life. This happened alongside reports of large profits for vaccine makers Pfizer and Moderna.
The European Union, imposing budget constraints on themselves and unable to reach a consensus, opted for a different approach — something more akin to the free-market way that Americans usually buy drugs. This has resulted in a sluggish rollout — only 10 percent of European adults are fully vaccinated versus nearly 40 percent of Americans — and a prolonging of the pandemic.
Consider this a lesson about government involvement in the prescription drug market.
The traditional American approach to drug purchases works for some drugs. But what we’ve learned from this pandemic is that like the COVID vaccine, when large amounts of prescription drugs are needed to treat a public health crisis like insulin for diabetes, or PrEP for HIV, government intervention can facilitate both innovation and access.
Congress is once again debating ways to lower drug prices and President Joe Biden has thrown his support behind a plan to give Medicare, one of the nation’s largest purchasers of drugs, the ability to negotiate with pharmaceutical companies the prices it will pay for medicines.
Pharmaceutical companies have long warned that this kind of government involvement would stifle innovation and hurt consumers. The industry — in an effort to protect its profits — has sowed fear that drug pricing reform would handcuff research and development, kill innovation as we know it, and lead to “lost cures” that never make it to market.
The fast-track development of COVID-19 has demonstrated that the government can be a constructive and responsible partner with the industry.
Public investment in research combined with guaranteed sales at an agreed upon price resulted in an unprecedented pace of research, development and distribution. The American people got innovative drugs in record time. These breakthrough technologies are widely available in neighborhood grocery stores, clinics and pharmacies. They are administered at no cost to those who want them.
The pharmaceutical companies have profited handsomely. In a recent earnings call with investors, Pfizer said it expected its vaccine would result in $26 billion in sales in a single year alone.
Meanwhile, this cooperative venture between the government and drug-makers provided a solid foundation not only for the development of new products, but also first-of-its-kind innovation. Researchers are already building off the mRNA technology used to create the COVID-19 vaccines to study potential vaccines against malaria and other life-threatening diseases.
The vaccine story suggests that a restructuring of the relationship between the government and the industry can be accomplished in a manner that benefits American patients and taxpayers while keeping the industry financially healthy. There is much that can be improved in industry performance beyond just lower prices. Recall, that only about one-third of new drugs are truly innovative. The remaining are marginal tweaks to existing, highly profitable drugs that offer few if any additional clinical benefits beyond what’s already available.
A well-designed public policy would allow the government to balance true innovation, paying generously for the drugs that work and provide real value and paying less for the ones that don’t.
Negotiation accompanied by infrastructure and innovation investments can balance both the budget and the need for scientific breakthroughs, making innovative therapies accessible and affordable.
Americans deserve better than what they are currently getting. As the masks come off and businesses reopen, Congress can work to turn the success of the COVID-19 vaccine into the new normal, lower the price of drugs and continue to champion true innovation.
Richard Frank is the Margaret T. Morris Professor of Health Economics in the Department of Health Care Policy at Harvard Medical School. He previously served as Assistant Secretary for Planning and Evaluation in the Department of Health and Human Services.
Mark Miller is the Executive Vice President of Health Care at Arnold Ventures. He is the former executive director of Medicare Payment Advisory Commission (MedPAC), a nonpartisan agency that makes Medicare recommendations to Congress.
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