Protect Incentives for Pharmaceutical Innovation

From Liberate to Stimulate: A Bipartisan Agenda to Restore Limited Government and Revive America's Economy

Liberate to Stimulate Index

In recent years, Congress has faced mounting public pressure to “do something” about the rapidly rising prices of prescription drugs and to rein in what are believed to be excessive industry profits. Although prescription drug spending comprises just 10 percent of overall health care costs, it has been one of the fastest growing components of overall health care spending during the past two decades—rising by an average of 11 percent annually during the 1990s and by 9 percent in 2006, compared to just 6 percent for spending on physician services, according to the Kaiser Family Foundation.

Faced with this public pressure, as well as mounting federal and state government expenditures on drug purchases, members of Congress have proposed a variety of measures to cut the price of prescription drugs. These include reimportation of lower-priced drugs from foreign countries with price controls, direct negotiation of reduced drug prices by the Centers for Medicare and Medicaid Services, and direct restrictions on drug and medical device industry marketing and promotion practices. More recently, would-be health care cost cutters have proposed integrating cost-benefit and comparative-benefit analysis into governmentrun health programs and in the Food and Drug Administration’s (FDA) approval process. For example, the Patient Protection and Affordable Care Act created a new Patient Centered Outcomes Research Institute (PCORI) to study the comparative effectiveness of different treatment options with the expectation that drugs and other treatment options that do not deliver what it considers sufficient “bang for the buck” will cease being prescribed.