Drugs

Competition Promotes Lower Drug Prices: White Paper

David McFarland

— 2 min read
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A Foundation for Research on Equal Opportunity white paper, “The Competition Prescription: A Market-Based Plan for Making Innovative Medicines Affordable,” says that increasing competition among drug companies is the surest way to lower drug prices. “Drug prices continue to grow at rates exceeding inflation and economic growth due to a policy deadlock between progressives and conservatives about the desirability of further government intervention in the pharmaceutical sector,” writes paper author Avik Roy. “Both sides have concluded that the only way to reduce prescription drug prices is through price controls. Republican opposition to Democratic proposals for price regulation has maintained the status quo. Both sides, however, are mistaken in believing that market forces are responsible for high drug prices. The market for prescription drugs is not ‘free.’ Indeed, as we will discuss in this report, federal laws and regulations that distort the market and create barriers to competition are the primary drivers of high drug prices.”

Roy says a review of the U.S. drug pricing landscape shows that high prices exist where competition is minimal and low prices exist where competition is robust. In the rest of the economy, he says, technological innovation drives prices down while increasing quality and expanding access. “Pharmaceutical innovation can improve clinical outcomes and lower costs,” he writes, “in a competitive market. There are ways for Congress to expand competition in the pharmaceutical industry while preserving the incentives for innovation.” The report recommends these steps: 

  •          minimize FDA barriers to competition for off-patent small molecules, including legislation allowing for generic substitution in situations where the REMS (FDA Risk Evaluation and Mitigation Strategy requirements) vary, standardization of REMS protocols so patents are no longer a barrier to entry, and a new pathway for generic drugs where specialized delivery is necessary to achieve the desired clinical effect;
  •          streamline regulations for biosimilars by sunsetting the Biologics Price Competition and Innovation Act in 2020 to reevaluate whether expensive Phase 3 clinical trials are really needed to prove that biosimilars are as safe and effective as their branded counterparts and harmonizing generic substitution rules for small molecules and biologics;
  •          minimize federal drug coverage mandates;
  •          accelerate medical innovation by replacing the current “all or nothing” FDA approval system with one that reflects the realities of scientific research and the profiles of chronic long-term conditions;
  •          create Swiss-style safe harbors for insurer drug price negotiations;
  •          require an up-or-down congressional vote for major FDA regulations; and
  •          move toward a consumer-driven healthcare system in which consumers directly buy their own coverage and care.

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