Daniel J. Mitchell | Posted: Nov 13, 2019 8:11
AM
Recently,
I shared part of an interview that focused
on Mayor Pete Buttigieg’s scheme to give more subsidies to colleges, thus transferring
money from poorer taxpayers to richer
taxpayers.
Here’s the
other part of the interview, which revolved around a very bad idea to copy
nations that impose price controls on prescription drugs.
In some
sense, this is a debate on price controls, which have a long history (going all the way
back to Ancient Rome) of failure.
But my
comments focused primarily on the adverse consequences of Pelosi’s approach.
And if you
want more details, Doug Badger explained how Pelosi’s approach would
backfire in a report for the Heritage Foundation. He starts with an explanation
of the legislation.
The Lower Drug Costs Now Act of 2019
(H.R. 3), introduced last week with the backing of House Speaker Nancy Pelosi,
D-Calif., would double down on the failures of existing government policies
that have distorted prescription drug prices and contributed to higher health
care costs. …H.R. 3 would establish a system in which the U.S. government
bases prices for cutting-edge drug treatments on those set by foreign governments.
The measure would set an upper price limit at 1.2 times a drug’s average price
in six other countries (Australia, Canada, France, Germany, Japan, and the
United Kingdom). The secretary of health and human services then would seek to
“negotiate” prices below that upper limit for at least 25—and as many as
250—drugs each year. …A manufacturer that declined to negotiate the price of
any of its products would incur an excise tax of up to 95% of the revenues it
derived from that product in the preceding year.
Doug then
warns against an expansion of government power.
The bill represents an unprecedented
exercise of raw government power. The federal government already imposes price
curbs across a range of programs, requiring manufacturers to pay the government
rebates… These provisions all are confined to federal programs, but nonetheless
have distorted drug prices throughout the health sector. It’s one thing
for the government to dictate the prices it pays in programs it finances. It is
quite another for the government to impose a price for a product’s private sale
and to extract money from a company on a long-ago settled transaction.
He then
concludes by showing some of the negative consequences.
…aggressive government price-setting has
damaged innovation and limited access to new treatments in all six of the
countries whose price controls the bill would import. If the U.S. adopts price
controls, it risks the same results here. Access to new drugs is much greater
in the U.S. than in countries with price controls, in part because of having
shunned price controls. …This lack of access can have damaging effects. A study
by IHS Markit…concluded that Americans gained 201,700 life years as a
result of faster access to new medicines. …Countries with price controls also
suffer a decline in pharmaceutical research and development. In 1986, European
firms led the U.S. in spending on pharmaceutical research and development
by 24%. After the imposition of price control regimes, they fell behind.
By 2015, they lagged the U.S. by 40%. …the president’s Council of
Economic Advisers…concluded that while price controls might save money in the
short term, they would cost more money in the long run. Government
price-setting, it wrote, “makes better health care costlier in the future by
curtailing innovation.”
As you can
see, price controls have a deadly effect in the short run (the 201,700 life
years).
But as I
stated in the interview, the far greater cost – in terms of needless deaths –
would become apparent in the long run as new drugs no longer come to market.
By the way,
it’s not just me, or folks on the right, who recognize that there will be
adverse consequences from price controls.
Writing for
left-leaning Vox, Sarah Kliff acknowledges that there are trade-offs.
The United States is exceptional in that
it does not regulate or negotiate the prices of new prescription drugs when
they come onto market. …And the problems that causes are easy to see, from the
high copays at the drugstore to the people who can’t afford lifesaving
medications. What’s harder to see is that if we did lower drug prices, we
would be making a trade-off. Lowering drug profits would make pharmaceuticals a
less desirable industry for investors. And less investment in drugs would mean
less research toward new and innovative cures. …In other words: Right now, the
United States is subsidizing the rest of the world’s drug research by paying
out really high prices. If we stopped doing that, it would likely mean fewer
dollars spent on pharmaceutical research — and less progress developing new
drugs for Americans and everybody else.
By the way,
I have no idea where the red lines actually belong. I’m just trying to
emphasize that consumers who pay the market price (or closer to the market
price) are the ones why underwrite the cost of discovering new drugs and
treatments.
And Ms.
Kliff definitely agrees this trade-off exists.
Every policy decision comes with
trade-offs… If the United States began to price regulate drugs, medications
would become cheaper. That would mean Americans have more access to drugs but
could also expect a decline in research and development of new drugs. We might
have fewer biotech firms starting up, or companies deciding it’s worth bringing
a new drug to market. …Are we, as a country, comfortable paying higher prices
for drugs to get more innovation? Or would we trade some of that innovation to
make our drugs more accessible to those of all income levels?
For what
it’s worth, I don’t actually think there’s much of a trade-off. I choose
markets, both for the moral reason and because I want to maximize long-run
health benefits for the American people.
P.S. Because
pharmaceutical companies got in bed with the Obama White House to
support Obamacare, some people may be tempted to say Pelosi’s legislation is
what they deserve. While I fully agree that it’s despicable for big companies to get
in bed with big government, please remember that the main victims of Pelosi’s
legislation will be sick people who need new treatments.
No comments:
Post a Comment