Why price controls on Medicare Part D are a bad prescription

Policymakers should focus on market-oriented solutions like the administration's rebate proposal

By Adam Brandon - - Tuesday, August 27, 2019

ANALYSIS/OPINION:

Republicans, including many so-called free market conservatives, sometimes fall back into a nasty habit of doing the Democrats’ leg work for them. Such is the case with recent Senate legislation that would impose an inflationary cap or penalty on prescription drugs as part of Medicare Part D.

By all means, the rising cost of prescription drugs in the United States is a major problem afflicting millions of Americans who deserve better. But are state-mandated inflationary caps — price controls — the answer? Despite the myths propagated by big government politicians in both parties, an inflationary cap on pharmaceuticals is a Band-Aid fix that would certainly do more harm than good. With price controls come reduced innovation and fewer drugs on the market. Is this how Republicans promised to fix health care?

Fans of bad economics must use economic myths to justify their bad ideas. But to stop bad bills, you need to clear the air and dispel the myths surrounding what an inflationary cap actually is and would do. Let’s take a look at some of the worst arguments from Republicans who support such a measure. 

Supporters of an inflationary cap claim it is the only way to lower drug prices for Medicare Part D beneficiaries. In truth, manufacturers will be forced to offset the costs of a government cap in Part D in the private sector, raising prices for millions. At the same time, a government-imposed penalty or rebate in Part D for drugs with price increases above inflation is the wrong way to lowering costs in Medicare Part D. Policymakers should focus on market-oriented solutions, like the Trump administration’s rebate proposal.

Still, proponents of an inflationary cap blame “corporate greed” as a catch-all driver of high drug prices. In reality, the essence of drug prices in Part D are the result of negotiations between plans and manufacturers. Similar to what we have seen in education, the more government is involved in structuring these plans, the higher prices will inevitably rise.

In a similar vein, supporters of an inflationary cap claim that it will prevent drug companies from receiving unlimited subsidies. But solutions to high drug costs do not exist in a vacuum. There are plenty of market-oriented solutions to reorient reinsurance subsidies in Medicare’s catastrophic coverage phase. 

Another way that advocates of the inflationary cap dodge criticism is by refusing to call the proposal for what it is; a price control. An inflationary cap is an indirect price ceiling, meant to repress market forces. Price ceilings by definition are meant to control prices. 

The United States leads the world in medical innovation, particularly in terms of breakthrough pharmaceuticals. Politicians and bureaucrats are lying to you if they claim that an inflationary cap wouldn’t harm innovation. An inflation rebate that is only applied to brand medicines would arbitrarily target innovative medicines. More than 60 percent of pharmaceuticals are developed in the United States, and an inflationary cap would take a drastic toll on such critical innovation. 

To make matters worse, an inflationary cap isn’t even a legal solution to combat higher drug prices. Don’t let supporters of such a plan tell you differently. Such a policy would violate the spirit of the non-interference clause which has allowed competition between Part D plans to hold down costs and has been key to Part D’s success since its inception.

In a last-ditch effort, defenders of an inflationary cap claim to have broad, bipartisan support. This isn’t even an argument built on the merits. It’s an attempt to sidestep the valid criticisms leveled at an inflationary cap listed above. In truth, multiple senators have correctly linked the cap to price controls. To anyone remotely familiar with messaging in Washington, bipartisanship is more often than not code for lazy, feel-good policy that results in the out-of-touch swamp we have today. 

We are in the midst of a startling and growing trend within the Republican Party. Big government policies that conservatives railed against on the campaign trail are now resurgent, this time from members of the same party that bills itself as “free market.” But bad economics is still bad economics, regardless of whether there is an “R” or a “D” next to a politician’s name. An inflationary cap as part of Medicare Part D is bad economics, and conservatives who value free markets and prosperity should oppose it at every turn. 

• Adam Brandon is president of FreedomWorks. 

https://www.washingtontimes.com/news/2019/aug/27/why-price-controls-medicare-part-d-are-bad-prescri/