Drug Price Controls Would Hurt Seniors and Our Free Market Economy
By Phil Kerpen
The latest iteration of Build Back Better – the president's multi-trillion-dollar tax-and-spending binge that has been stalled in Congress all year – purports to reduce the cost of prescription drugs via negotiation. But Medicare prescription drug plans already negotiate prices aggressively; as Obama's CBO director Doug Elmendorf explained back in 2009: "additional authority to negotiate for lower drug prices would have little, if any, effect on prices for the same reason that my predecessors have explained, which is that private drug plans are already negotiating drug prices."
So how can Democrats extract the $250 billion they are counting on draining from Medicare drug spending to fund the creation of new, unrelated welfare programs in Build Back Better? They don't negotiate – they impose price controls. Starting with 10 drugs but sure to expand over time from there, the secretary of HHS would "negotiate" by setting the "maximum fair price" – and if the manufacturer disagrees, they are subject to a tax on total sales of that product that starts at 65 percent, then jumps to 75 percent after 90 days, 85 percent after 180 days, and finally a shockingly confiscatory 95% after 270 days. A price set by government under that threat is a price control, not a negotiation.
Price controls always lead to shortages, and draining $250 billion from Medicare – sure to rise as the price control scheme expands – will mean shortages of life-saving medicines for seniors. An analysis of an earlier version of the Democratic price control plan by University of Chicago researchers found that it would lead to between 167 and 324 fewer new drugs being developed over the next two decades, with R&D spending plunging about $1 to $2 trillion.
There is no free lunch. If politicians slam the breaks on Medicare prescription drug spending, seniors will inevitably have less access to innovative drugs.
We might expect major U.S. corporations to understand the basic reality that markets allocate resources better than politicians, and that price controls do more harm than good. Unfortunately, when it comes to health care policy, the HR department seems to call the advocacy shots even when the C suite would know better.
When the latest Democratic draft was announced, Bloomberg ran an article with the surprising headline "Drug Price Deal Hailed by Employers as Key Step to Slash Costs."
The American Benefits Council, which represents hundreds of large employers, said they were "very supportive of the provisions."
"The negotiations provision will be a foot in the door," the article quoted the ERISA Industry Committee saying favorably, that would lead to the extension of drug price controls to private plans outside of Medicare.
But there is no reason to think that, once opened, the price control door would be limited to prescription drugs. With burgeoning inflation lifting the costs of everything, it would be easy for politicians basking in their "success" at setting drug prices to move on to broader price-controls in a 1970s redux.
Every company that sees drug price controls as a way to save costs should think long and hard about the implications of allowing government to set prices for their own products and services under the threat of a confiscatory tax.