Senate Finance Committee Drug Pricing Changes - Market Driven or More Destructive Price Controls? | Citizens Against Government Waste
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Senate Finance Committee Drug Pricing Changes - Market Driven or More Destructive Price Controls?

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


The healthcare policy community is anxiously waiting to see what kind of pharmaceutical pricing legislation Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.) will produce for Medicare and Medicaid drug plans when Congress returns from the Independence Day break.  Will the shallow, but damaging, policy of instituting price controls be utilized or will enhanced competitive private-sector negotiations be allowed to take hold?  Because competition always leads to lower costs and more innovation, Citizens Against Government Waste (CAGW) hopes it is the latter.

CAGW was pleased when Sen. Grassley announced he was opposed to the Trump administration’s proposal to use an International Price Index (IPI) to lower costs in Medicare Part B.  CAGW has been against this proposal since it was first announced in October 2018.  It cannot repeated enough that the reason other countries have lower drug prices is because they utilize socialistic-style price controls, and the threat of compulsory licensing or stealing intellectual property, to get the price they want from pharmaceutical companies.  Utilization of price controls is why the United States leads the world in biopharmaceutical research and development and other countries have lost their edge in this field.

While the committee staff have been very quiet about what has been discussed, there are indications that some disturbing proposals are being considered that could be added to the committee bill.  CAGW is particularly concerned about a proposed policy that would force manufacturers to provide an inflationary rebate if a drug’s cost rises faster than the rate of inflation.  This is a price control.  The policy would be particularly destructive for generic drugs as they behave more like commodities and their prices fluctuate frequently.  Because a generic’s drug price is generally a great deal lower than the brand-names drug, a price for a generic drug could easily increase more than inflation even though the actual price increase may only be a few cents or dollars.  There are many reasons a drug price may go up beyond the lack of competition, such as a shortage of ingredients or market pressures.  But, too often politicians do not look at how government actions interfere with the market and cause drug prices to increase.

Doug Badger, a senior fellow at the Galen Institute, pointed out in a March 22, 2019 column that the “federal government requires manufacturers to pay rebates, grant discounts, and comply with various price-distorting directives across a range of programs.”  The government price controls found in the Veterans Affairs drug contracting schemes, the mandatory 70 percent discount in the Medicare Part D coverage gap, Medicaid’s 23.1 percent rebate, and the 340B drug discount program have contorted and caused price shifting across the entire pharmaceutical market.  It would be better for Congress to study the history of and the distortion price controls cause rather than dream up new ones.

There are also discussions underway changing how Medicare Part D operates that may be based on a proposal by American Action Forum that would cap beneficiaries out-of-pocket costs and shift more responsibility to insurers and drug manufacturers where robust negotiations would be used to lower costs.  There would also be less dependency on taxpayer funds supplementing the costs.  CAGW agrees that insurers and drug manufacturers should be more engaged in price negotiations as beneficiaries’ costs increase through the various phases of Medicare Part D,  making it behave more like a true insurance plan.

We should know shortly whether Senators Grassley and Wyden can come to some agreement on drug pricing.  Let’s hope the proposals are based on free-market negotiations and not more destructive price controls.

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