Speaker Nancy Pelosi (D-Calif.) is expected to soon release her long-awaited drug pricing proposal.  According to news reports, the plan is expected to require the Department of Health and Human Services (HHS) to directly “negotiate” with pharmaceutical manufacturers for an “acceptable” price for at least 25 drugs that would apply to the entire U.S. market.  If no agreement can be reached, the Government Accountability Office would act as an arbitrator and oversee a dispute resolution.

To date, there has been no list of drugs that would fall under this rubric.  Pharmaceutical companies that do not participate in the process would be charged a 50 percent excise tax on prior sales of each drug being negotiated.  Drugs outside of the 25 not being negotiated would face similar fines if their prices go above a certain threshold, likely in an effort to prevent cost shifting.

Speaker Pelosi’s idea is similar to a plan that was discussed at a March 7, 2019 Medicare Payment Advisory Commission (MedPAC) public hearing and in a June 2017 report to Congress, under which a third party would be brought in to use binding arbitration as a way to lower drug costs.  Some MedPAC commissioners and economists have supported using binding arbitration to negotiate drug costs, claiming the process would be comparable to what professional baseball teams and players use to settle salary disagreements.  But this plan would be far different then what happens in baseball negotiations and 26 free-market, fiscally conservative organizations saw the fallacy in that claim.  On May 20, 2019, they wrote a letter to Congress voicing their opposition.

In baseball, players and teams jointly agree on a panel of three arbitrators, present their respective salary requests and offers, and agree beforehand that whatever the arbitrators decide will be the result.  In the Speaker’s plan, the government controls the entire process.  It writes the rules, picks the arbitrator, decides what drugs will go through the process, and enacts a severe penalty if a pharmaceutical manufacturer refuses to participate.

But Speaker Pelosi has a problem.  She and others in her caucus think the binding arbitration model represents a compromise and a place where the Democrats can come together with a middle-ground solution.  Others in her caucus want an even more draconian tool, such as Rep. Lloyd Doggett’s (D-Texas) bill, H.R. 1046, “the Medicare Negotiation and Competitive Licensing Act of 2019,” which would allow a biopharmaceutical’s patent to be stolen by the government if the company does not yield to a price determined by the HHS secretary.

Both ideas would have disastrous results for patients.  Without the ability to negotiate a free market price, the government would destroy the incentive for pharmaceutical firms to produce and distribute medications that improve and save lives.

The Pelosi and Doggett plans are similar to policies like price controls, compulsory licensing, and rationing that are utilized in countries with socialized or government-run healthcare.  As a result, their biopharmaceutical research and development has been decimated and they now depend on U.S. investors and taxpayers to fund most of the innovative drugs that are developed in the world.

As always, Citizens Against Government Waste prefers a free market solution to lowering drug costs.  It would be far better for Congress to make sure the Food and Drug Administration (FDA) is properly utilizing the tools found in the 21st Century Cures Act to speed up clinical trials for innovative drugs and wisely spending drug user fees to expedite generic drug approvals.  Congress should also work with the Trump administration for better trade deals so that other countries stop riding on U.S.-based research by halting the threat of compulsory licensing to “negotiate” a price.  It is time these countries pay their share of biopharmaceutical development and for price controls on U.S. drugs to come to a halt.