One of the items that will undoubtedly be on the agenda for the next Congress is lowering prices for prescription drugs.

The Trump administration has explored ways to lower drug prices and Nancy Pelosi, who stands a good chance of being Speaker of the House in the next Congress, proposed yesterday that this is possible "common ground" for Democrats and Republicans.

Drug prices are a concern for most Americans, especially older Americans. We're glad that our leaders on both sides of the aisle understand our concerns about the cost of prescription drugs.

The Hill reported on Pelosi's remarks:

Drug prices have spiked over the last decade, putting a pinch on consumers. While the issue has become a bipartisan one, particularly with strong public support for lowering drug prices, the two parties are divided on how best to bring down costs.

Democrats want Medicare to negotiate prices and want to allow Americans to buy cheaper prescription drugs from abroad. Republicans have historically opposed those ideas, though Trump supported both policies on the campaign trail.

The administration has been following a drug price reduction “blueprint” released from the White House earlier this year, and recently said they will force drug companies to disclose the list prices of drugs in televised ads.

The Trump administration recently floated an idea to link Medicare drug reimbursements to the prices of drugs in other developed countries (where drugs are less expensive).

But there is a drawback to this proposal: it could stymie development of new and life-saving drugs.

To understand how devastating this could be to development of new drugs, you have to know what goes into drug prices in the U.S.  Cato's Roger Pilon explained:

In a nutshell, the miracle drugs that have so revolutionized modern medicine don’t come cheaply. On average it takes a billion dollars and 15 years of research and development to meet FDA safety and efficacy requirements, which most new drugs fail. But once a drug succeeds, the second pill costs pennies to produce, which is why patents are so crucial, failing which no one would invest in such risky ventures.

When companies look at the world, however, they see socialized systems imposing price controls—except in America. So they charge market prices here (half the world market) and take what they can get abroad. What that means, of course, is that American’s pay the lion’s share of R&D costs while foreigners get drugs “on the cheap,” and therein lies the political problem here and the call for reimporting “cheaper” drugs from abroad.

. . .

This new HHS proposal is not as far-reaching as the earlier reimportation proposals, but the implications for future drug R&D investment are the same. As the Journal writes, “any investor who wants to bankroll the cure for Alzheimer’s is already staring at a very small chance of success—and the Trump HHS proposal adds another potential limit on return,” likely driving investment “into less difficult drug categories” or into other ventures altogether.

Government funded drug R&D might not then be far behind. That would further politicize the development of drugs, much like European formulary limits do by rendering unavailable many of the modern miracle drugs we Americans enjoy.

IWF's Hadley Heath Manning also explored these issues in a February Policy Focus. Hadley explored the cost of bringing new drugs to market and the role of competition in reducing the costs of prescription drugs. Here is the Policy Focus.