High prices are the key internal link to pharma investment and productivity.
Lieberman et al 20 [Steven M.; nonresident fellow at the Center on Health Policy within Brookings Economic Studies (2007 to present). He is an expert on health care policy, analyzing reimbursement, budgetary, economic, and strategic issues. He is president of Lieberman Consulting, Inc; Paul B. Ginsburg; a nonresident senior fellow at Brookings; professor of the practice of health policy at the Sol Price School of Public Policy, University of Southern California; and a senior fellow at the USC Schaeffer Center for Health Policy & Economics. A Harvard-‐trained economist, Ginsburg served as vice chair of the Medicare Payment Advisory Commission (MedPAC) and was the founding president of the Center for Studying Health System Change (HSC); Kavita Patel; former nonresident fellow and managing director of clinical transformation at the Center for Health Policy at Brookings. Dr. Patel is an advisor to the Bipartisan Policy Center and a member of Health and Human Services Physician Focused Payment Model Technical Advisory Committee; Brookings; “Balancing lower U.S. prescription drug prices and innovation – Part 1; https://www.brookings.edu/articles/balancing-lower-u-s-prescription-drug-prices-and-innovation-part-1/]//kaviWaRu
The high prices U.S. patients pay for drugs are a key driver of pharmaceutical company financial performance, generating large profits relative to many other industries and an estimated three-quarters of worldwide drug company profits. As a result, lowering U.S. drug prices would likely have an outsized impact on overall incentives to innovate. The prospect of large profits, which translate into high returns on investment (ROI), attracts the private capital that finances pharmaceutical innovation. U.S. pharmaceutical companies invested an estimated $80 billion in 2018 in drug research and development (R&D), and such spending yielded an annual average of 44 new drug approvals from 2015 to 2019, although 47 percent are “orphan drugs,” meaning that very few patients will benefit from them. The Food and Drug Administration (FDA) designated almost half of the new drugs in this period as “first in-class,” and over a quarter as “breakthrough” therapies.
Lowering high U.S. drug prices will make investing in drug development less attractive for private capital, leading to fewer new medicines coming to market. Balancing the tension between lowering U.S. drug prices while sustaining robust R&D investment poses a complex challenge for policymakers and raises the fundamental question addressed in this two-part blog post: how can the U.S. minimize the adverse effects of lower drug prices on innovation?