A Pick-Me-Up for President Biden

(Bloomberg Opinion) -- As talks continue on what might be salvaged from President Joe Biden's stalled tax-and-spending plan, one of its smaller pieces is worth singling out — a proposal to cut the prices Americans pay for prescription drugs. As it stands, it's a good first stab, but Biden should press to go further. Doing so would serve the public and strengthen the president's popular support.

The existing system must strike any outside observer as absurd. U.S. pharmaceutical companies charge their domestic customers vastly more than they demand of buyers in the rest of the world. And Medicare is expressly barred from doing what foreign equivalents take for granted: using its bargaining power to get better prices.

In short, producers are granted government-enforced monopolies for new drugs and are generously assisted by research carried out at taxpayers' expense — yet the U.S. suspends this public-private partnership at the point of sale. This leaves manufacturers free to maximize their profits, with their most powerful customer's hands tied, rendering treatments unaffordable for many of the people who need them. That's some deal.

To sustain it, the industry invests heavily in Washington, securing the support of Republican and Democratic lawmakers alike. Earlier plans for pricing reform were sharply scaled back in the version of Build Back Better passed by the House in November. The current proposal calls for Medicare to negotiate, in the first instance, the price of just 10 drugs, with the stipulation that new drugs won't be included. (An earlier version had up to 250 in its sights.) The plan has other drawbacks too — in particular, it indicates a standard negotiated discount, rather than seeking to weigh price against value.

Still, it's a start. It would save $80 billion over 10 years, according to the Congressional Budget Office. More important, it would establish the principle that Medicare can press down on drug prices without causing the industry to collapse.

Critics say the changes would reduce the companies' revenue and profits. True: That's the idea. And they say this would affect future innovation. So it might. The CBO reckons that one fewer drug would come to market in the first decade after the bill's passage, and nine fewer over the following 20 years. But the goal can't be to maximize innovation regardless of cost. Granting patents in perpetuity would boost profits and might summon more innovation, by gouging the public more deeply and making drugs even less affordable. The challenge is to get the balance right. As things stand — just look at what America is paying — the balance is far too skewed in the companies' favor.

Lawmakers have been induced to look away, but Biden could use this cause to rally voters regardless of party to his side. At a minimum, he should campaign for the current proposal, but it would be better to go further. Broaden the list of drugs whose prices can be negotiated — aiming in due course to make drugs not on the list the exception rather than the rule. Adopt value for money as an explicit factor guiding those negotiations. Counter the effect on innovation by using some of the savings to boost research, especially in the institutes and labs that seed the real breakthroughs. Make the case and dare the industry's pals in Congress to disagree.

The president needs a pick-me-up. Here's a prescription that might work.

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