Nearly 150 potential Alzheimer's drugs have failed during clinical trials in the past decade.
The disease still has no cure. It cost our healthcare system $277 billion each year. Yet investors keep funding these long-shot efforts because they know that one breakthrough drug could generate millions in profits.
Several lawmakers are considering a police -- known as "binding arbitration" -- that would let the government underpay for drugs covered through Medicare, killing incentives for investors to fund new treatments.
Like all industries, the pharmaceutical sector has to provide adequate return on investments for shareholders. It costs billions of dollars and takes a decade to develop just one new therapy.
Companies need revenues form successful medicines to offset the cost of failed drugs to fund future projects. Take away the possibility of high returns on the rare, successful drug, and investors would have no reason to invest in R&D.
After a drug receives FDA approval, drug companies and insurers negotiate its price. These talks sometimes hit roadblocks.
Binding arbitration allows the government to break the deadlock. If manufacturers and insurers can't agree, Medicare officials could bring in a third-party arbitrator. After both sides argue their positions, the arbitrator sets a price.
Both parties would be legally bound to accept the decision. And arbitrators would almost always choose artificially low prices favored by the government.
After all, government officials get to hand-pick these supposedly "neutral" arbitrators who are inclined to set low prices. That translates into lower profits -- and fewer dollars for new projects.
Binding arbitration would destroy the appeal of drug development and leave countless potential cures to die in the pipeline. Lawmakers should drop this plan immediately.