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Ezekiel Emanuel's Flawed Solution

September 9, 2015
In a New York Times op-ed today, Dr. Ezekiel Emanuel proposes “The Solution to Drug Prices.” The piece is problematic in many respects, but we agree with one of his primary contentions: in discussions about drug prices, value is the real issue. This point was nicely made in a recent Times piece, where it quoted Crystal Bedford, whose five year old daughter, Marley, suffers from a rare genetic disease, Rhizomelic Chondrodysplasia Punctata (RCPD). A treatment for the disease is currently being research by a biotechnology company. Ms. Bedford said, “Getting another month with your child or another year or another five years — that’s kind of everything.”

What parent or caregiver wouldn’t agree with that statement? How is time with a loved one, time that could lead not to just a new memory or shared laughter, but time during which a better treatment may ultimately be developed, not the very definition of value? Dr. Emanuel’s thesis appears to be that gutting the innovation ecosystem will create more value. Nothing could be further from the truth.

Emanuel takes for granted that imposing here in America the price controls and government-set formularies present in many European countries would not jeopardize patient access to needed therapies. This assumption is untenable; the European systems he cites have seen patients severely limited in which medicines they may use, and furthermore have seen biopharmaceutical investment dry up as innovators leave for friendlier shores. European price controls are a major contributor to the fact that U.S. researchers now develop nearly 60 percent of the world’s new medicines, a number that stood at 30 percent in the 1970’s.

Emanuel’s prescription would endanger America’s ecosystem of biotechnology innovation that has been responsible for so many medical breakthroughs in recent decades.

In another misleading move, Emanuel goes after a few high-profile success stories within the industry to argue that profits are too high, suggesting that profits could be cut by “a third or a half” while maintaining “sufficient incentive” for continued drug development. But cherry-picking the most successful companies does not paint an accurate picture of overall industry profitability. Further, one must ask on what basis he judges a given profit margin to be “sufficient.” That’s a decision best left to the market and the investors who must decide where to allocate theircapital. We can be sure that government intervention to artificially cap profits will reduce the amount of investment into new treatments and cures.

When it comes to the real drivers of healthcare spending, Emanuel misses the forest for the trees. Medicines only account for about 10% of overall healthcare costs. Reducing the profit margin of biopharmaceutical companies – even by up to half as he proposes – would at most shave a few percentage points off of total healthcare expenditures. Further, innovative medicines often produce savings in other areas of the healthcare systems – savings which could dry up if investment in the sector is reduced by proposals such as Emanuel’s.

We share the goal of ensuring that all patients have access to the most appropriate medicines for their condition. But to meet that goal, insurance companies must play their role as well. The insurance industry’s recent expansion of the use of specialty tier cost-sharing, in which patients must pay a relatively high percentage of their drug costs rather than a flat co-payment, is threatening access for many patients and potentially increasing healthcare costs in other areas.

When it comes to the value of biopharmaceutical advances, health insurance companies and Dr. Emanuel are both advancing policies which are penny wise, pound foolish.