Written by D. P. Throt for the Telegraph.
One of the biggest problems facing US consumers is drug prices. According to the RAND Corporation drugs in the United States cost around 2.56 times more than they do elsewhere in the world and this is just an average value. Brand named drugs on the other hand is around 3.44 times pricier here than they are in the rest of the developed world. Prescription drugs make up a fifth of the costs associated with healthcare and hence drug prices are one of the roadblocks on the road to achieving cheaper and truly universal healthcare. One of the least controversial ways to at least partly reduce this problem and consequently the costs would be to repeal the current ban on reimportation of drugs into the United States so that we could at least partly deal with the mounting costs of prescription.
To win FDA approval for a new drug, a company spends around 15 years on certification and invest 2-3 billion in research and development costs before the drug or therapy reaches the American consumer. The FDA approval process makes it incredibly difficult to approve a drug, let alone to bring it to market resulting in substantial R&D costs that are then offloaded onto the consumer.
These costs are further exacerbated by a stark lack of competition within the healthcare markets. Flaws in our drug patent laws allow many drugs that were discovered decades ago to stay under patent for decades to come This also is tied into another problem, some drug makers have been repackaging and introducing incremental improvements into their products. These changes are then patented and used to effectively patent certain drugs indefinitely and since there are substantial costs associated with the litigation of such meritless patents many companies simply find it unprofitable to try and bring new drugs to the market. This is such an issue that a study found that drug prices for the 12 most grossing drugs increased by 68% with some of the worst offenders seeing their prices spiked by over 100%, due to a lack of competition caused by these artificial monopolies.
These flaws have allowed drugmakers like AbbVie to choke off competition, costing consumers reliant on these drugs thousands of dollars every year.
All of this results in pharmaceutical and insurance companies being all but discouraged from innovating and incentivised if not forced to offload these costs onto US consumers resulting in significantly higher drug prices. There are also other very significant opportunity costs associated with the status quo such as a lack of innovation as well as substantial costs to the US taxpayer through healthcare mandates, taxes and skyrocketing insurance premiums that chip away at Americans’ disposable incomes.
There are several ways we could address this regulatory issue. For one we could look into liberalising our system in line with countries such as Japan where it takes just weeks to get an investigational drug approved.
Alternatively, we could strip the FDA of its certification authority and allowing individuals and healthcare providers to freely use any drugs they desire while treating shoddy drugs as either consumer protection issues or by shifting certification into the private sector entirely. The latter approach has already been piloted under the so-called right to try laws, which have allowed the terminally ill access to experimental treatments and therapies not yet approved by the FDA.
This way we could remove one of the most substantial bottlenecks present in our system. Some would argue that such a laissez-faire approach could endanger lives, but the FDA’s cautious approach already puts lives at risk as the administration has a strong incentive to take an incredibly precautionary approach to most drugs as the regulator can be punished for any deaths that occurred caused by the drug after certification (type I error). Yet similar penalties do not exist for type II errors, that is deaths incurred as a result of the FDA failing to approve or certify efficacious drugs that could, if deployed, save millions of lives.
Another fairly easy and inoffensive reform that could be pursued would be to allow competition across state lines. Currently, the bulk of regulatory costs faced by insurers come from the states themselves and thus by allowing consumers to purchase coverage from outside their home states would allow us to not only shatter the mono and oligopolies that have formed in many states but also create powerful incentives for state legislatures to remove unnecessary mandates and regulations that impose unnecessary costs on American consumers.
A final and most crucial piece of regulatory reform is addressing the ever-growing shortage of doctors and other healthcare providers in the United States. According to the Association of American Medical Colleges projected a shortage of up to 139,000 physicians by 2033. As our population grows and Americans live longer lives this number is set to grow even further. Yet at the same time of the roughly 18 thousand students who applied 1,155 did not find a suitable residency program. This so-called residency bottleneck has been the topic of many debates and articles in the public eye. Yet what very few people realise is the amount of control the government currently has over the number of physicians. Take CMS, which provides payments to hospitals to hire their residents. This coupled with other restrictions have resulted in the Federal Government being able to effectively centrally plan the number of physicians and the COVID pandemic has shown us the federal goverment cannot respond to the shortage due to political gridlock. To eliminate this bottleneck we ought to take the government out of the equation by removing these subsidies and shift most aspects of licensing and certification into the private sector so that market forces can address the shortage.
Skilled immigration is another crucial part of the equation. Currently, it is very difficult for doctors outside of the United States to practice medicine due to a number of restrictions imposed by a host of institutions. Most of these regulations offer very little in the way of quality and have been put in place as a result of extensive lobbying efforts by interest groups to prevent foreign competition. By removing these restrictions we could incentivise equally-skilled doctors to come to the US and practice here, thus increasing the supply of physicians and forcing American physicians and other healthcare providers to become more competitive.
Another reform that could easily be implemented would be for the federal goverment to compel states to recognise medical licenses issued in other states. This would have a twofold effect. First, it would make it easier for doctors to cross state lines and provide both in-person services and practice telemedicine while creating pressure to liberalise licensing and indirectly increase the number of residents.
Of course one could argue that by removing all of these barriers to entry and making it substantially easier for someone to practice medicine we could be opening the door to lower quality of care and more malpractice however studies have found that roughly a third of all doctors who made 10 or more malpractice payments were disciplined by their state board. It’s also worth noting that hospitals and other healthcare would continue to rely on certification. The only major difference would be that these standards would come solely from the private sector itself.
All of these regulatory reforms could help chip away at the $330 billion burdens that healthcare regulation places on the American consumers with little to no effect on the American taxpayer and could result in billions of dollars in net savings and increased tax revenue for both the states and the Federal government.
Model Telegraph 