Hillary Clinton plan to curb drug prices puts the screws to drugmakers and insurers

Presidential candidate Hillary Clinton

Presidential candidate Hillary Clinton unloaded on both the drug and insurance industries on Tuesday with proposals to help protect consumers from rapidly escalating drug prices. While most are unlikely to ever become a reality, the suggestions for price caps on consumer copays and a mandate on what drugmakers must spend on R&D turned up the heat on the debate over rising prices.

The Democratic front-runner laid out her proposals at a forum in Iowa on Tuesday, The New York Times reports. She said that asking people to pay thousands of dollars for pills they need to stay alive is not how the market is supposed to work and was a sign of "bad actors making a fortune off of people's misfortune."

Her plan calls for a $250 per limit limit on what consumers have to pay for deductibles on drugs, a provision that would affect the insurance industry. It also would create a ratio for how much of their revenues drugmakers would have to spend on R&D, eliminate tax breaks for drug advertising and allow Medicare to negotiate costs with drugmakers. There was more. She recommended reducing the exclusivity time granted biosimilars from 12 to 7 years, and permitting Americans to buy drugs from other countries that generally have lower prices than the U.S.

Her positions are already having an impact. In remarks about high drug prices over the last several days, she has both raised the volume of the debate on a subject many Americans across the political spectrum feel strongly about, and lowered the value drug companies, whose stock prices tumbled in a panicked reaction Monday.

The industry group PhRMA responded with its usual position that such provisions kill innovation and so hurt consumers in the long run, while some economists said the proposal to mandate how much drugmakers must spend on research could create "perverse incentives" that would lead to wasteful spending.

Some of the proposals, like buying drugs overseas and having Medicare negotiate discounts are perpetual Democratic proposals that have been non-starters with a Republican-controlled Congress. BMO Capital Markets analyst Alex Arfaei reassured his clients by telling them it was unlikely Clinton's suggestions will result in price controls. "Pharmaceutical companies are easy targets in presidential politics, and these extreme examples provide great talking points," he told clients in a note. Terry Haines, a Evercore ISI analyst, was even more to the point. "Bottom line is, politically this doesn't happen."

But given the level of concern among consumers, some experts think that Clinton's proposals will have drugmakers thinking twice about a pricing approach that seems to many outsiders to be based more on what they can get away with than what a drug is worth.

David Cutler, a Harvard professor who has provided health policy advice to the Obama administration, said Clinton's approach may be imperfect but it is targeted at some of the problems with the current system. "How can you get the focus to be more on research and less on getting people to take medicines they don't need?" Cutler asked rhetorically.

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