NCPA - National Center for Policy Analysis


April 17, 2009

Drug makers spend years and an average of $1 billion to take a new medicine from initial concept all the way to regulatory approval.  Pharma and biotechs also spend huge sums of money on medicines that never make it to market -- often because of problems discovered during the extensive, and expensive, clinical testing of the drugs in humans.

Because of the enormous risks and costs involved in developing new drugs, pharmas and biotech companies depend on the products that do reach pharmacy shelves to deliver enough revenue to produce profits.  To achieve that goal, drug companies often put hefty price tags on new medicines.

But according to U.S. Sen. Richard Burr (R-N.C.), government involvement in health insurance would reduce the rewards for bringing a new therapy to market.  As an example of what federal involvement in health care can do, he points to the federal Medicare and Medicaid programs:

  • Medicare and Medicaid frequently reimburse hospitals and doctors less for procedures than what those procedures actually cost.
  • That forces health care providers to make up the difference by charging higher prices for other procedures.
  • A national health insurance program would result in similar below-cost payments on drugs -- a scenario that the senator says would make it difficult, if not impossible, for drug makers to make enough money off new treatments to justify the cost of their development.

A better approach, says Burr, would be to let private industry drive reforms and to focus more efforts on prevention and wellness.  He said that he will push for federal dollars to support the industry in North Carolina though federal agencies such as the National Institutes of Health, but he said the goal must be to produce products that improve the quality of life for individuals.

Source: James Gallagher, "Sen. Richard Burr: National health plan would deter drug development," Triangle Business Journal, April 16, 2009.

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