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July 24, 2020
The IPI Won’t Fly–– Issue #93

The White House has invited members of Congress and others to a 3 p.m. ceremony today for the signing of an executive order (EO) on prescription drug pricing.  
 
We know this continues to be a hot political issue, but a key part of the EO reportedly involves importing price controls from countries with government-run health systems and using them as a basis for U.S. drug pricing—International Pricing Index or IPI.
 
This always has been a bad idea, but recent events have underscored how dangerous and damaging it would be.
 
More than 1,100 drugs are in clinical trials right now for vaccines and treatments to fight COVID-19, with the pharmaceutical industry mustering a near-wartime mobilization of research and manufacturing resources to save counties lives from the global pandemic.
 
Doug Holtz-Eakin got to the heart of the issue: “The entire pharmaceutical world is engaged in a massive race to find COVID-19 vaccines and save our collective bacon from the coronavirus,” he wrote in an American Action Forum post.  
 
“Is this really the right time to whack it with destructive price controls that will slash revenue, deprive it of the financial wherewithal to provide said vaccines cheaply, and cut future innovation as well?” 
 
America’s pharmaceutical industry is center stage in fighting this threat. With just 4% of global population, it funds 44% of world medical research and development, invests 75% of global medical capital, and holds the intellectual property rights for most new medicines, according to the President’s Council of Economic Advisers
 
Galen Senior Fellow Doug Badger took a deep dive into the IPI issue in a paper that shows Americans currently have access to many more newer and better drugs than do people in the price-reference countries.  
 
Doug’s paper, Examination of International Drug Pricing Policies in Selected Countries Shows Prevalent Government Control over Pricing and Restrictions on Access, shows that citizens in IPI countries have dramatically lower access to many important drugs.  The chart on the last page of his paper says it all.
 
Members of Congress are not going to want to explain to their constituents, especially seniors, why they would support an IPI policy that would so undermine their access to the newest and best drugs.
 
There are other better ideas on drug pricing as Doug explains in several pieces: better ideas to consider, other options, and why the IPI would be a poison pill for innovation. 
 
The order the president will sign today also is expected to direct his administration to create rules addressing drug importation (also a problem, especially while the administration is advancing a Buy America agenda) and targeting the 340B program, which is desperately in need of reform. 
 
Another proposal reportedly has been shelved to direct the generous but hidden rebates that flow through the prescription drug payment chain to seniors rather than to health plans.  This is unfortunate because the “rebate rule” could provide quick help to seniors who have the highest drug costs. 
 
There were contradictory estimates of the cost impact of the rebate rule, but CBO said it would increase Medicare premiums if health plans no longer have rebates in the revenue mix, so this good idea has once again been dropped. 
 
Executive orders do not result in immediately action but are a directive to departments and agencies to undertake formal rulemaking—a process that can take months or even years. We will have much more to say about this as details unfold.
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