10 Things I Hate About Federal Price Controls on Drugs
The Department of Health and Human Services (HHS) is trying to convince the White House to lower prescription drug prices using a price control system called the “International Pricing Index.”
This index would set drug prices under Medicare Part B based on their costs in other countries, many of which have nationalized health-care systems in place. Socialist Sen. Bernie Sanders (I-Vt.) has introduced a legislative version of the proposal that would apply to the entire health-care system.
There are 10 big reasons that price controls on prescription drugs would hurt families and destroy our health-care system further.
Nobody is smarter than the marketplace.
Governments cannot set prices effectively, and efforts to do so ignore the purpose of prices in the first place. Prices convey critical information about supply and demand. The problem with America’s health-care system is that government has already obscured the pricing system.
Trying to fix price distortion with more price controls is like dumping buckets of water in your canoe to keep it from sinking. Price controls aren’t the solution, they are the problem.
The International Pricing Index is likely illegal.
The International Pricing Index is a product of the Center for Medicaid and Medicare Innovation (CMMI). The CMMI is only authorized to conduct limited experiments to improve care in the United States.
HHS readily admits the International Pricing Index would affect roughly half the country and many Medicare Part B drugs. This is hardly a limited experiment. This proposal amounts to an importation of foreign price controls to America.
In the past, Congress has also prohibited using Medicare as a price-fixing tool. We can expect several legal challenges to this massive overreach.
Price controls discourage medical innovation.
The U.S. leads the world in medical research and innovation. Drug makers set prices that cover the costs of inventing, testing, and recouping financial losses due to artificial price controls overseas.
Is it fair for the U.S. to pay more because other countries are not paying enough? Of course not. But if pharmaceutical innovators cannot afford to create new lifesaving drugs in the U.S., nobody will. There are better ways to attack this problem.
The revenues generated by U.S. drug prices are currently the engine of medical progress around the world. According to the Brookings Institution, drug discovery is directly linked to expected revenues in the market for those drugs. It takes about $2.5 billion of additional drug revenue to achieve one new drug approval.
The U.S. was responsible for 42 percent of global drug revenues in 2016. Enacting price controls would have a profound and devastating impact on medical discovery, and it would happen at the expense of American families who need these future treatments.
Price controls lead to drug shortages.
The U.S. accounted for nearly 65 percent of sales for all new medicines introduced between 2011 and 2016, compared to 17.5 percent combined in the U.K, Italy, France, Spain, and Germany.
It is currently affordable for drug companies to make and sell drugs in the U.S. If the White House artificially lowered prices, companies would have fewer resources to produce drugs. In other words, the supply of drugs would go down.
American consumers, on the other hand, would be able to purchase more drugs at those artificially low prices. As a result, demand would go up. When supply is down and demand is up, you have yourself a drug shortage.
Price controls increase wait times for treatment.
Ninety-five percent of new cancer treatments are available in the U.S. compared to only 74 percent in the United Kingdom, 49 percent in Japan, and 8 percent in Greece (all countries in the proposed index).
Drug shortages mean longer wait times for critical treatments. In Canada, the wait for surgery can be up to 20 weeks. In some cases that 20-week window can be the difference between life and death.
Price controls have failed in other markets.
In several other sectors of the economy, we’ve seen the unintended damages that follow well-meaning price controls. Rent control led to apartment shortages. Minimum wages resulted in fewer job opportunities. Artificially low food prices led to bread lines. Fuel price ceilings led to gas lines.
Across-the-board, price manipulation results in market distortion. The pharmaceutical industry will be no different.
Price controls could lead to “death panels.”
When government determines the value of drugs and treatments, they control patients’ access to those drugs and treatments. In some cases, price controls in other countries have resulted in “death panels.” In the U.K., treatment isn’t covered if it costs more than $50,000 per year of life added to the patient’s life span. What if you disagree with the government’s price tag value on a year of life? Tough luck.
Price controls will lower our quality of care.
According to a 2009 study, the U.S. has higher rates of cancer screenings than any of the 10 countries with socialized medicine. Higher rates of care, better quality of care, and more expedient care are all features of the U.S. system that contribute to higher costs. But you get what you pay for.
Price controls would be enforced by Obamacare, which may not exist soon.
The HHS-proposed price controls would be enforced by the Center for Medicaid and Medicare Innovation, which was created by the Affordable Care Act, more commonly known as Obamacare. However, there is a case working its way through the courts called Texas v. United States that could strike down Obamacare in its entirety.
When the Supreme Court upheld Obamacare’s individual mandate in 2012, it ruled the fine for being uninsured was a tax. However, the 2017 tax cuts reduced the penalty to $0. The Supreme Court’s majority opinion argued the individual mandate “yields the essential feature of any tax: it produces at least some revenue for the government.”
A tax of $0 clearly does no such thing. This argument is shared by the Department of Justice. The writing is on the wall, Obamacare’s days are numbered.
The American people don’t want price controls.
The HHS proposal went through a public comment period, which allowed taxpayers to submit positive and negative feedback on the pricing index. The public comments were overwhelmingly negative, yet the agency has yet to rescind the rule
Make no mistake, our health-care system is broken. But the latest HHS proposal and its legislative equivalents would make the problem worse, not better.