Government Drug Price Negotiations Offer A False Promise
With inflation rising and midterm elections just months away, Democrats are desperate for something they can pitch to voters as a reason to keep them in control of Congress.
They’re hoping a watered-down version of their Build Back Better Act could do the trick. Sen. Joe Manchin, D-W. Va., who helped shoot the bill down last winter, has met repeatedly with Senate Majority Leader Charles Schumer, D-N.Y., in recent weeks in an effort to hash out a compromise on the massive spending package.
Reports indicate a proposal to give Medicare the power to “negotiate” drug prices could be a key feature of any compromise. Sen. Manchin recently stated that drug pricing reform is “the one thing that must be done.” He’s urged fellow lawmakers to take action on drug price negotiations and “keep the promises [they’ve] made to our seniors.”
But these “negotiations” are just price controls in disguise. As such, they’d decimate medical innovation and deprive patients of access to lifesaving medications.
It’s long been a Democratic goal to give government the ability to set drug prices. The most recent iteration of Build Back Better would empower federal bureaucrats to “negotiate” prices for certain high-cost medications without generic competition under Medicare Parts B and D.
A more accurate term for what Democrats have in mind would be “coercion.” Under the proposal, the government could levy a 95% excise tax on total sales of a drug if a pharmaceutical company refused to participate in the negotiating charade.
That leaves drugmakers with two options. They can accept the government-dictated price, or lose nearly every penny of sales on a medication.
While there are limits on which and how many drugs’ prices officials can set each year, there’s no limit to how many drugs’ prices they could fix over time. If BBB passes, 100 drugs will have been open to negotiation by 2030.
Knowing that government could one day drastically cut a drug’s price, many investors will think twice before pouring money into research and development.
The R&D process is incredibly risky and expensive, often requiring $2.9 billion and 15 years to get a drug to patients. A prescription drug market free of bureaucratic meddling affords investors the opportunity to recoup those outlays if the drug they’ve invested in turns out to be one of the 12% of experimental treatments that makes it through clinical trials.
Price controls would disrupt this system, leading to a drop in investment and fewer innovative treatments. University of Chicago economist Tomas J. Philipson estimates that BBB’s proposal for negotiations would reduce R&D spending by $663 billion, result in 135 fewer new drugs being introduced, and cause the loss of over 330 million U.S. life years through 2039.
But lawmakers need not rely on economic modeling to arrive at these conclusions. Just look across the Atlantic or over our northern border, where governments put price controls on prescription drugs.
Consider that the United Kingdom develops a fraction of the drugs the United States does. Between 2001 and 2010, the United States invented three out of every five new medications. The United Kingdom developed just 8%.
Price controls also prevent patients from accessing the latest life-saving medications. While U.S. patients had access to 96% of all new cancer medications launched between 2011 and 2018, Canadian patients had access to fewer than 60%.
There’s little reason to believe life under a government price-fixing scheme would be any different for American patients than their British or Canadian counterparts.
The Democrats’ price control scheme is a transparent attempt to buy votes. Given its long-term costs in innovation foregone and access denied, this is one negotiation Americans should decline.
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