Politicians are making a lot of promises right now about how they can fix everything for you.  This includes lowering drug prices.

In fact, there is a bill in the Senate right now that is being advertised as a way to lower your costs. But, Senator Chuck Grassley’s (R-Iowa) and Senator Ron Wyden’s (D-Ore.) bill, S. 2543, the Prescription Drug Pricing Reduction Act of 2019, would be more accurately called the Drug Price Control Act.  It would create more government interference in healthcare and create a host of detrimental consequences.

Price controls always cause shortages and distortions in the marketplace.  The result will be higher, not lower, prices, less patient access to new treatments, and millions of American jobs put at risk.  And America’s long-held leadership as the world’s foremost innovator and provider of medicines would be threatened.

The bill’s prescription for top-down penalties and increased taxes is not the cure for increasing drug prices.

The logic?  If we call price controls by a different name, maybe it will work?

A key price control provision in the bill would require manufacturers to pay a tax to the government for the amount the cost of their drugs increased above the rate of inflation.  This “inflationary rebate” would apply to Medicare Part B and D, which have tens of millions of Americans as enrollees.  How does taxing medicines make their prices go down?  It’s illogical.

Tying price increases to inflation is no better than closing your eyes and drawing a number out of a hat. Inflation is entirely unrelated to market value.  Supply and demand are always changing, as are prices, and penalizing companies who raise prices beyond the rate of inflation is nothing more than government price-fixing.  Inflationary caps could cause prices to rise in the non-Medicare market, leading to more distortions and government interference.  Eventually, in an effort to further fix the pricing problem it created, Congress would institute more price controls, leading to fewer cures, reduced access, and a drop in medical innovation when companies can no longer recoup investments. 

Less government intervention in the market is the answer, not more.  Continuing the administration’s momentum to speed up the drug approval process at the Food and Drug Administration and better trade deals so other countries help pay for our research instead of free-riding, are the types of policy prescriptions that will help patients.  We need to encourage competitive market forces to lower prices and promote innovation.

Arbitrary taxes or caps on prices will not work.  Price controls never do.  Bills like S. 2543 will cut off access to lifesaving drugs and force manufacturers to limit investment in new cures.

Americans will all feel much better if Congress fights to keep our healthcare system free from government intervention rather than setting up new and harmful schemes like price controls disguised as inflationary rebates.