Memo to Trump: Price controls are not the way to go
By Peter Roff
President Donald Trump, Secretary of Health and Human Services Alex Azar, and the rest of the administration deserve considerable thanks for the creativity they’ve employed in developing workarounds for some of the worst parts of Obamacare. Up to a point.
Regrettably, the recently announced plan for bringing the cost of prescription drugs down is so heavily dependent on government-imposed price controls as to render it anathema to anyone serious about using market-based reforms to bend the cost of healthcare downward.
Azar’s department is already taking comments on a potential rule tying the price for what Medicare Part B pays for certain drugs to what they cost in other countries. To the people who think drugs are cheaper in Canada because the government charges less for them, that might sound like a good idea. It is in fact hogwash, and the only comment people should be sending into HHS is to drop the initiative in its entirety before someone gets hurt.
The key reason the price consumers pay for drugs in other countries are cheaper than they are in the United States is because the bureaucrats in a country like Canada that runs a single-payer healthcare systems dictate to manufacturers the price they’re willing to pay. Companies that refuse to play along run the risk of being shut out of the market altogether, which isn’t great for patients, or of having carbon copies of supposedly patent-protected drugs suddenly appear on the market at a much lower cost as if by magic.
Neither of these outcomes are good for patients or consumers. They’re also bad for U.S. manufacturers and investors, which means a chilling effect on innovation can’t be far behind. How does a CEO justify an investment of millions or more into research and development of new drugs when government dictates on price virtually guarantee the money won’t be recouped to any kind of reasonable degree before a patent expires and generics flood the market? People sometimes forget the first pill is the most expensive one to manufacture. After that, it’s all downhill, production and distribution costs generally being negligible by comparison.
The Wall Street Journal put it well earlier this week when it editorialized on the subject by explaining how cheaper European drugs weren’t necessarily better: “Of 74 cancer drugs launched between 2011 and 2018, 70 (95 percent) are available in the United States. Compare that with 74 percent in the U.K., 49 percent in Japan, and 8 percent in Greece. This should cure anyone of the delusion that these countries will simply start to pay more for drugs. They’re willing to deny treatments if it saves money.”
A chief complaint about Obamacare in its nascent stage, before Nancy Pelosi and Harry Reid rammed it through Congress without knowing what was in it (because few if any members of Congress would admit to having read it), was that rationing of care would be an almost certain result. Well, the same is true of price controls. They also lead to rationing — remember the 1970s, anyone? — and leave too much power in the hands of the bureaucrats who set them while disempowering consumers. Markets should set prices by sending signals about what they should be. It’s not a job for an SES-level federal bureaucrat working just off Capitol Hill looking at a spreadsheet showing what they cost in Europe.
The president and Secretary Azar would be well advised to drop the whole idea quietly and let it just fade from memory. Price controls never work. The desire to use them is not helpful as a matter of policy or politically: They play to the liberal/left narrative that Trump is an autocrat intent on doing everything his way or not at all.
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