The main thing to keep in mind while addressing this question is that the vast majority of approved drugs in the US – up to 90%[1] – are “me-too” drugs. These are drugs that address no unmet clinical need or offer no improvements over existing drugs. These drugs predominate because pharma companies believe they will get the greatest return on investment by selling copycat drugs into large, established markets, rather than investing in innovative R&D efforts to address or create new markets. They are correct in this belief. 
From The Growth of Me-Too Drugs
Once the problem is stated this way, the solution is obvious, at least at a high level: innovative drugs should be allowed to command premium pricing, me-too drugs should not.
I propose three steps to implementing this solution:
- CMS (the Center for Medicare and Medicaid Services) should maintain a list of unmet clinical needs for which there are no approved pharmaceutical treatments. If the FDA is satisfied that a new drug candidate is safe and effective in meeting one of these needs, it is put on the “premium” list.
- Similarly, the FDA can approve trials designed to show superiority, rather than just non-inferiority. If a drug demonstrates that it is not only safe and effective, but also superior to current treatments, then it too is on the “premium” list.
- Currently, CMS must pay for every drug approved by the FDA and deemed necessary for medical care by a physician. It is also prohibited from negotiating with drug manufacturers on price. These constraints would be maintained for “premium” drugs, but lifted for all other drugs.
Medicare and Medicaid are by far the largest payors for pharmaceuticals in this country. If they cut the prices they pay for me-too drugs – and they could because there will be several to choose from for a given indication – all the other insurers will want similar prices. Innovative drugs will continue to command high prices and huge profit margins. The me-too drugs will become bottom-feeders. The risk:reward ratio for innovative vs me-too drugs will be inverted, resulting in a greater supply of innovative and superior drugs.
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