Medical innovation at risk in Obama's budget plan
President Obama recently gave a speech outlining a framework for reducing the federal deficit by $4 trillion over the next 12 years. There are many questions about the president's budget plans.
But the most urgent one is: Why has he declared war on healthcare innovation?
The President has made a number of proposals that could stop medical breakthroughs from happening in this country.
For starters, he wants to give Medicare the power to negotiate drug prices.
Both the nonpartisan Congressional Budget Office and Medicare's own actuaries have expressed doubt that the government has the ability to effectively negotiate lower drug prices in the program.
Left alone, Medicare's prescription drug benefit, called Part D, employs market forces to give seniors more choices and drive down prices.
If the government steps in and starts negotiating, it would likely cause a shrinkage in the treatment options available to patients.
This is why Senators Tom Daschle and Ted Kennedy drafted the "non-interference clause" in the Medicare Part D prescription drug benefit, which restricts the government from interfering with drug price negotiations in the private sector.
The Veterans Administration (VA) health care plan negotiates drug prices directly. Its national formulary covers 59 percent of the 200 most popular drugs in the country. Medicare, meanwhile, covers 85 percent of those drugs, on average.
A study from Columbia University found that just 19 percent of all new drugs approved since 2000 were covered by the VA. And just 38 percent of drugs approved since 1990 were covered.
What's happening is that VA negotiating tactics are driving out some drug providers from the program, leaving patients with fewer treatment options – and lower quality of care.
The President is also proposing to restrict intellectual property rights on brand name drugs to expedite the development of generics. This move would undermine pharmaceutical innovation.
Pharmaceuticals are a high-risk, high-reward business. For roughly every 10,000 compounds tested, only one actually gets FDA approval and makes it to market. And the average drug costs over $1 billion to develop.
If the government reduces the window that pharmaceutical companies have to exclusively sell the drugs they develop, there will be fewer financial rewards for such development, and firms will tamper down on the investments made toward new research. Ultimately, fewer new drugs will get made and patients will suffer.
Finally, Obama is looking to strengthen the Independent Payment Advisory Board (IPAB). Created by the new healthcare law, IPAB consists of 15 presidential appointees and is empowered to make cost-cutting recommendations for Medicare. The panel's recommendations automatically become law without congressional action.
IPAB is basically a group of unelected bureaucrats with an immense amount of power. There's already a major lawsuit, Coons vs. Geithner, challenging the constitutionality of IPAB. Making IPAB even stronger puts even more power in the hands of people that largely don't have to answer to the American public. That's simply dangerous.
IPAB is a stalking horse for bureaucrats to start rationing health care with abandon. And it's likely going to start by cutting coverage for the most expensive treatments, reducing the financial rewards for the developer and, in turn, lowering the incentives to create new drugs in the first place.
America does need to reduce its staggering deficit. But the President's method of slashing public healthcare costs by instituting measures that undermine drug innovation is the wrong approach.
Peter J. Pitts is President of the Center for Medicine in the Public Interest and a former FDA Associate Commissioner.