Sometimes, meals served the second time around can be delicious. But if they were poorly prepared in the first place, they will never taste good. The same is true of warmed-over health care policies, as patients and taxpayers are about to discover. Very soon, the Biden administration and its congressional allies may introduce a legislative package to address prescription drug costs, and a form of harmful government price controls are sure to be an unappetizing leftover on the menu.
The Democrats’ bill will likely resemble House Speaker Nancy Pelosi’s plan from the previous Congress, H.R. 3. One of the most objectionable elements is a “negotiation” process that is negotiation in name only. This “negotiation” would have the government set a maximum price Medicare will pay for a prescription drug based on what other countries with socialized health care systems pay and would punish companies that fail to accept the government-set price with up to 95-percent excise taxes. The Speaker may call this provision an “international price index,” but it is a thinly veiled price-fixing scheme.
Unfortunately, advocates for price controls are not confined to the Democratic side of the aisle. The Trump administration issued several ill-considered Executive Orders that would link what Medicare pays for certain medicines to a similar international price index, or a composite of prices paid in “Most Favored Nations.” Because these orders were limited to some drugs in government programs, the excise tax was omitted – but beyond this feature, the concept was uncomfortably similar to what Speaker Pelosi’s bill contained.
Whether patients would see much difference in out-of-pocket costs from any of these plans remains debatable since other middlemen in the supply chain might gobble up most of the savings. But even if patients did save a few dollars in the short run, over the long term they would be left even hungrier. After all, rigging the price of a good or service at below-market rates has historically led to shortages – remember government price controls on gasoline, and the long lines of the 1970s?
What incentive will drug researchers have to innovate if they know the government will arbitrarily cap pricing without considering the massive cost – recently averaging $1.3 billion — to bring a new drug to market? Drug development would slow and, with it, patient access to life-saving cures. At the same time, taxpayers eventually lose. As nonpartisan sources such as the Congressional Budget Office and the National Bureau of Economic Research have reported, spending on initially costly drugs tends to save money in health programs years ahead, by preventing more expensive surgeries and hospital stays.
These warnings are all too familiar to the experts. Just over two years ago, more than 150 leading economists joined to write an open letter warning policymakers, “price controls can lead to a reduction in patient access to certain drugs, less investment in the research and development of new drugs, and cost-shifting that raises the prices of other therapeutics. Ultimately, patients will suffer as cures are delayed or entirely undeveloped, while taxpayers will be denied potential savings from drugs that could obviate more expensive treatments in government healthcare programs …”
Their words could not be more relevant today.
The pandemic crisis has shown the power of the U.S. free-market system to drive innovation. The United States led the world in vaccine development because of the years of investment the private sector made in new technologies and critical infrastructure. Thanks to this investment, vaccines that typically take years to develop were ready for testing in a matter of months. Mimicking the flawed drug pricing schemes of socialist nations would bring this level of innovation to a screeching halt. And a halt is something no one can afford, given new variants of COVID and the ongoing need for treatments.
Washington can and should do better to reduce prescription drug costs, without price controls. Steps include redesigning the Medicare Part D benefit, increasing access to generics, reducing the tax and regulatory barriers to R&D, and ensuring that trade agreements foster free-market competition rather than government price controls.
Taxpayers and patients deserve prescription drug policies that are better than stale leftovers from the last Congress and Administration. After all our nation has been through with COVID-19, price controls should be unpalatable, and unthinkable.