This article was published by the Macdonald-Laurier Institute’s Washington office, the Center for North American Prosperity and Security (CNAPS.org). It originally appeared in the Detroit News.
By John Adams, November 21, 2024
Sen. Bernie Sanders, I-Vt., just commissioned a Congressional Budget Office report that explores seven different strategies to reduce prescription drug prices. According to CBO, the strategy that would slash costs the most is “reference pricing,” or anchoring U.S. prices to the prices in Canada and other developed nations.
Cheaper drugs obviously sound great. But Americans should be careful what they wish for. As the Canadian father of a child with a rare disease, I urge my American friends to consider the unintended consequences.
My son has PKU, a genetic disorder that can lead to intellectual disabilities and seizures. Treatment must start within the first days of life to avoid the worst outcomes.
My family was lucky; we were able to come to the United States in 2007 for the first PKU drug, which was developed by a small biotech company. At the time, that drug wasn’t accessible to most Canadian patients who rely on government-run drug plans. Even to this day, two of our large provinces either do not cover it or provide extremely limited coverage.
The sorts of price controls that Sen. Sanders favors have limited access to new medicines in Canada and other nations with government-run health systems. Two-thirds of all new drugs worldwide are first released in the United States, after which there’s a one-year lag, on average, until the same drugs are launched in the next country.
Sometimes the wait is much longer. Of 287 new drugs released between 2018 and 2022, American patients had access to about three-quarters by the end of that period, according to a RAND study. But Germans could only get 52%, Brits got 43% and Canadians got a paltry 28%.
Slow-moving bureaucracies contribute to the problem: from 2012 to 2019, it took an average of 464 more days to approve a new medicine in Canada than in the United States. The situation is so bad that all provincial premiers (equivalent to state governors in the United States) are calling for major changes.
These huge access gaps stem from fundamentally different approaches to innovation, pricing and value. Historically, the United States has taken a free market attitude, allowing drug developers to price products based on market demand, whereas Canada undervalues innovation, controls prices and rations patient access.
The American system has made the United States the global leader in pharmaceutical research and development. One critical component of this system has been private firms’ willingness to license and develop promising discoveries that arise from National Institutes of Health-funded research at universities and elsewhere.
Implementing price controls that reference drug prices in other countries, as Sen. Sanders proposes, would eliminate the ability of private companies to earn a worthwhile return on these high-risk investments. As a consequence, fewer new products would come to market and patients will suffer.
Drugs are available sooner in the United States precisely because companies have pricing freedom. If the government sets artificially low prices, drug development will fall off and smaller biotechs doing much cutting-edge research will be squashed out of existence.
It’s true that Canada and other countries are freeloading off of U.S. R&D investments. That isn’t fair. But the solution isn’t for the United States to adopt policies that have been proven failures.
Further, price controls would largely fail to address a major reason patient costs are so high in the United States: Middlemen known as pharmacy benefit managers apply huge markups to many drugs.
Price controls are just one part of socialized health care. In these centralized systems, administrators manage costs by rationing access to all sorts of care — despite the negative consequences for patients. Currently, there are nearly 6.5 million patients without a family doctor, severe shortages of nurses and hospital beds, repeated closures of emergency departments and long wait times for care.
This rationing, especially of medicines, is shortsighted — because early treatment can save money in the long-term. Effective therapies lead to fewer emergencies, fewer hospitalizations and more days being productive and paying taxes. Focusing on initial cost while ignoring long-term value is a mistake.
Before Americans pick up bad ideas from abroad, they should take a hard look at the repercussions of those policies. Adopting elements of Canada’s system would end U.S. global leadership in drug development, hurt millions of patients desperate for new cures, and do little to address pharmacy benefit managers and other middlemen. America needs to safeguard its role as the world’s innovative medicine chest.
John Adams is CEO and co-founder of Canadian PKU and Allied Disorders (CanPKU+) and a senior fellow at the Macdonald Laurier Institute (MLI).
