Drug Pricing Schemes Mean More Government, Less Medicine

The Big Picture

Following the catastrophic failure of Build Back Better, President Joe Biden’s grab bag of far-left policies, Senate Majority Leader Chuck Schumer, is looking to push through a new slimmed-down version of the failed Build Back Better package in the halls of Congress. This new package is highlighted by misguided drug pricing schemes that only serve to stifle innovation, create shortages, and harm the very products that lower the cost of medicine. 

Drug pricing schemes disproportionately impact the generic and biosimilar markets, the products that drive the cost of medication down. If lawmakers are truly interested in lowering the cost of medicine, they should remove regulatory barriers that inhibit the development, production, and sale of life-saving medications. 

The Details

First and foremost, price controls are misguided and ignore market forces. Price controls are government mandates on a good or service’s maximum or minimum price. The inevitable result of price controls is shortages.   

How drug pricing schemes hurt generics.

  • Generic and brand medicines operate in two very different spaces. Whereas brand medicines enjoy a period of exclusivity to protect investments in research and development, generics and biosimilars operate in a competitive marketplace. 
    • The exclusive nature of brand medications spurs the very innovation that creates new treatments and improves healthcare quality. 
    • The competitive generic marketplace ends up lowering costs and increasing access to life-saving drugs. 
  • Two common components of drug pricing include medicare negotiation and inflation penalties. Both pose enormous problems for the development and access to generics and biosimilars. 
  • Direct price negotiation from Medicare undermines the development of biosimilars and generics. It creates a situation where forecasting the market for specific drugs becomes extremely difficult and discourages investment in the generic and biosimilar marketplace. 
  • The competitive nature of generics creates substantial savings for patients and results in a dynamic landscape where manufacturers enter and exit the marketplace. Generics are far more sensitive to customer behavior, and their low cost makes any price change proportionally more significant than their brand counterparts. The result is a situation where an inflation penalty would disproportionately punish the products that reduce the cost of medication.

Why it Matters

Despite the intention of lowering treatment costs, drug pricing schemes disproportionately target the very products that lower prices. Discouraging investment and pushing products out of the market that would otherwise provide millions of Americans access to effective and low-cost treatments is a recipe for disaster.   

Although lowering the cost of medicine is a worthy goal, heavy-handed government policies are the wrong way to go about it. The price of something is not simply an arbitrary number that the government can forcibly change. Instead, price is the value placed on a product that results from market forces and human behavior. 

We should be embracing the development of new treatments and low-cost generics. Unfortunately, these policies attack generics and biosimilars, inevitably making treatments more expensive and scarce.