International Pricing Index Proposals Would Harm Patients and Reduce Innovation

Reports indicate the Trump Administration may soon be prepared to reintroduce its international pricing index (IPI) model for Medicare Part B, and that this variant may include a “most favored nation” (MFN) provision. We understand policymakers may be tempted to peg drug costs in Medicare to the artificially low prices paid by foreign governments. However, IPI and proposals like it are seriously misguided, and will both harm patients and reduce innovation in America's pharmaceutical sector at a time when the world most needs new cures.

In December 2018, NTU organized more than 150 economists in a letter to Health and Human Services (HHS) Secretary Alex Azar, which warned the Secretary of the significant drawbacks to the Administration’s IPI proposal. They wrote:

In general, setting price controls at below-market rates leads to shortages, squeezes the cost bubble toward some other portion of the economy, and imposes a deadweight cost on society. In this case, price controls can lead to a reduction in patient access to certain drugs, less investment in the research and development of new drugs, and cost-shifting that raises the prices of other therapeutics. Ultimately, patients will suffer as cures are delayed or entirely undeveloped, while taxpayers will be denied potential savings from drugs that could obviate more expensive treatments in government healthcare programs, and the investment of capital in development of new medicines.

Though more than a year and a half has passed since over 150 economists signed that letter, their arguments still hold true. Of course, the world has also changed dramatically since then, and America now faces the twin threats of a historic pandemic and a severe recession. Now is the worst time for the government to try to punish American companies that are racing to find both a COVID-19 vaccine and numerous treatments for the disease. (For more on the impact price controls will have on the fight against COVID-19, see NTU’s recent comments on a proposed regulation for the Medicaid program.)

NTU also recently joined a coalition letter organized by FreedomWorks that makes the case against a new IPI proposal. The letter says, in part:

Any form of price setting is a treatment of symptoms, not causes. Prices stem from the actions and demands of both individuals and groups. As has been shown repeatedly in countries with socialized health care systems, governments cannot expect to set the price of any good - let alone one as crucial as prescription drugs - below its market value without incurring painful consequences.

...With the MFN provision, the U.S. would, by definition, move itself to the back of the line and would be required to have the most stringent price controls globally. Pharmaceutical companies cannot afford to spend exorbitant sums to develop new drugs in a nation that has made itself the worst place on earth to try and recoup their investments.

There is a better path forward for policymakers looking to bend the cost curve for prescription drugs, including Medicare Part D redesign, pro-growth changes to the tax code that make it more affordable for pharmaceutical manufacturers to onshore their production, and FDA reform that ushers in new and innovative brand and generic drug competition.

Policymakers across the ideological spectrum can work together on some of the above reforms. An international pricing index, though, would ultimately be destructive and counterproductive to the goal of reducing what American patients pay for their prescription drugs. NTU urges the Administration and lawmakers to roundly reject IPI and proposals like it, and we stand ready to work with stakeholders on the pro-taxpayer alternatives mentioned above.