Pharma pricing is a problem, but antitrust isn’t the (only) solution

The urgent task of developing a COVID-19 vaccine has reignited a perennial Washington debate: how to ensure access to affordable medicines without compromising incentives for innovation. Most agree we should handsomely reward a vaccine’s inventor — but a high-priced vaccine will be useless for those who cannot afford it.

As we address the ills of soaring drug prices, one prescription should be ignored. Rather than focusing on the drivers of escalating prices, some policymakers argue for abandoning settled principles of antitrust law in a misguided attempt to “fix” something — effective, evidence-based antitrust enforcement — that is not broken.

Sen. Elizabeth Warren (D-Mass.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.), for example, propose a ban on all mergers large enough to require pre-notification to the antitrust agencies. Warren claims that “giant corporations and private equity vultures are just waiting for a chance to gobble up struggling small businesses.” Even if that were true — notifications have actually declined — a merger moratorium is like choosing old-fashioned chemotherapy and its life-threatening side effects over more targeted therapy. The moratorium will kill a few problematic mergers that might threaten the body economic, but it will also kill many good mergers, needlessly stifling economic activity.

A narrower approach entails banning nearly all pharmaceutical mergers, as advocated by the Open Markets Institute. Two FTC commissioners seem amenable. Two months ago, they voted to reject AbbVie’s acquisition of Allergan, and one proposed to unleash the Inspector General on FTC staff for daring to recommend to the Commission that pharma mergers be permitted to proceed. A few months earlier, the same two commissioners voted to reject Bristol-Myers Squibb’s acquisition of Celgene, even though they acknowledged the proposed settlement, involving the biggest divestiture in merger review history, resolved every antitrust problem the FTC identified.

As current and former FTC officials, we believe these proposals represent a flawed approach. The notion that the FTC should prevent mergers absent evidence of an antitrust violation is deeply misguided – and jeopardizes the FTC’s impressive winning streak based on the many cases it has brought. During the past five years, the Commission has challenged 14 pharmaceutical mergers and required companies to divest 131 drugs. Beyond mergers, in 2013 the FTC won a landmark victory at the Supreme Court in FTC V. Actavis, essentially eliminating anticompetitive patent litigation settlements. And in January, the FTC sued Vyera Pharmaceuticals and “pharma bro” Martin Shkreli. These efforts result in massive savings for consumers and taxpayers; just ending reverse payments in patent litigation settlements saves $3.5 billion each year.

Still, drug prices continue to rise, especially for new drugs debuting at prices once considered unimaginable. For example, Zolgensma, a gene therapy for treating spinal muscular atrophy, has a list price of $2.1 million. Cancer drugs are so expensive that oncologists talk about “financial toxicity” as a side effect of treatment.

This is a particularly knotty problem for the elderly who receive health care coverage through Medicare and have been hard hit by COVID-19. The government is prohibited from using competitive bidding or direct negotiation when sourcing drugs for Medicare Part B — those administered by medical professionals. So drugmakers name their price and the federal government must pay.

Medicare Part D operates under a different model – companies use formularies to push down prices for outpatient drugs. Even that model falls short for drugs that do not yet face competition, and Part D is projected to cost more than $88 billion in 2020. Market exclusivity on so-called biologics like vaccines and insulin often outlasts patent protection, given the technological challenges in creating bioequivalent generics known as biosimilars. Incumbents often compound this problem by restricting distribution and withholding samples from potential competitors.

We support efforts to address rising drug prices while maintaining strong incentives for innovation. Strategies include the new CREATES Act, which allows drug makers to sue for access to drug samples; expedited or automatic approval for biosimilars that have passed muster with the European Medicines Agency; and incentivizing innovation with prizes.

As this list indicates, many causes of breathtaking pharma prices lie beyond the reach of the antitrust laws. Notably, the structure of the U.S. health care system inhibits consumers’ ability and incentive to choose among different providers and products, including prescription drugs. Because insurers pick up much of the tab, patients have little incentive to compare the prices of potentially interchangeable drugs. Even if they were so inclined, the opacity of drug prices and dearth of data available to patients about quality and outcomes inhibits comparison shopping.

To fix the root causes of high pharma prices, we should focus on the drivers of those prices rather than scrapping fundamental antitrust doctrine, including the requirement for evidence of an actual competitive problem.

Christine S. Wilson is commissioner of Federal Trade Commission. David A. Hyman is Scott K. Ginsburg Professor of Health Law & Policy at Georgetown University School of Law and the co-author of “Overcharged: Why Americans Pay Too Much For Health Care.”