Drug Price Controls Push Innovation Out of the Picture | Citizens Against Government Waste

Drug Price Controls Push Innovation Out of the Picture

The WasteWatcher

As the debate over Speaker Nancy Pelosi’s (D-Calif.) effort to increase government control over drug pricing heats up, a familiar proposal has also drawn scrutiny.

Rep. Lloyd Doggett’s (D-Texas) bill, H.R. 1046, the Medicare Negotiation and Competitive Licensing Act, was introduced on February 7, 2019 and has 126 cosponsors in the House.  This legislation would give the Secretary of Health and Human Services (HHS) the authority to control drug prices and decide which drug companies can produce a generic drug, regardless of patents.

What Rep. Doggett does not want taxpayers to know is that his bill’s competitive licensing idea is simply another name for compulsory licensing.  At its core, competitive licensing is a basic “take it or leave it” system.  According to H.R. 1046, if the drug company does not agree to the “appropriate price” on a Medicare part D drug set by HHS, the agency would “march-in” and turn over the manufacturing rights to another qualified pharmaceutical firm.  The new firm would be required to provide the original holder of the manufacturing rights “reasonable compensation,” which is also determined by HHS.

Sadly, Doggett and his cosponsors lack an understanding of simple economics.  The sponsor of a similar bill, Sen. Sherrod Brown (D-Ohio) said, “Either the drug companies play ball and negotiate or we have an alternative, it’s a free market alternative. It works for consumers.  It works to actually make the drug industry more competitive.”  Brown’s statement made it clear that he is unaware of how a market actually operates.  Utilizing price controls are not the way an economy that successfully focuses on consumer needs should operate.  Price controls in any market distort prices leading to shortages.  In this case, not enough innovative drugs will be researched and developed to meet the demands of patients.

Democrats came up with this “solution” for lowering drug prices by attempting to exploit the “march-in rights” contained in the Bayh-Dole Act of 1980.  This act was written to solve the problem at the time that only 5 percent of government-owned patents were being successfully developed and marketed in the private sector, a clear waste of federal research dollars. The authors of the act, Sens. Birch Bayh (D-Ind.) and Bob Dole (R-Kan.), addressed the issue of march-in rights in a 2002 Washington Post op-ed, stating the power should only be utilized “when the private industry collaborator has not successfully commercialized the invention as a product,” and not be contingent on the price or profit of the marketed product.

While sponsors of H.R. 1046 or similar legislation are solely looking at price controls on drugs, the true focus should be on shortening the Food and Drug Administration’s approval process for generic drugs and making sure the agency is adopting the policies found in the 21st Century Cures Act that will shorten clinical trials and ensure that competition occurs in the biopharmaceutical market. That’s the key to lowering drug prices, not price controls.

-- Angela McCallum

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