When Will Politicians Learn, Price Controls Do Not Work? | Citizens Against Government Waste

When Will Politicians Learn, Price Controls Do Not Work?

The WasteWatcher

On Friday, presidential candidates Sen. Cory Booker (D-NJ), Kamala Harris (D-Calif.), and Bernie Sanders (D-Vt.) introduced a bill that would create an independent federal agency that would determine and regulate the cost of prescription medications.  The bill, named the “Prescription Drug Affordability and Access Act,” would establish the Bureau of Prescription Drug Affordability and Access.  The legislation would require biopharmaceutical manufacturers that wish to develop and market a new drug to present its proposal to the agency that would include how much the research and development costs are, its proposed cost, and a list of similar medicines that were already on the market in other countries and their costs.  The company would also report any federal investments that may have contributed to the drug’s development.

The bureau would evaluate the information and determine a suitable price.  If the drug company disagreed with the price, the bureau could steal the company’s patent and allow a generic company to make the drug.

This legislation is price controls on steroids.  It is a well-known economic truism that price controls disrupt markets, cause shortages, and destroy innovation.  Yet, Democrat and Republican politicians keep offering them to bring down drug costs.

The drug bureau created in this new legislation, according to The Hill, is modeled after a Canadian agency that oversees and establishes prices for new medications.  The existence of this bureau explains why Canada has very little biopharmaceutical research and development and relies on U.S.-funded drugs to save lives in their country.

This new proposal rivals Speaker Nancy Pelosi’s (D-Calif.) legislation, H.R. 3, “The Lower Cost Drugs Now Act.”  Citizens Against Government Waste (CAGW) condemned her bill in a September 2019 blog  “Lenin, Stalin, and Capone Would be Proud of Pelosi's Drug Pricing Plan.”

Unfortunately, this Wednesday the Trump administration announced it is going full steam ahead to adopt their verisions of price controls, an International Pricing Index (IPI) and find a way to import low cost drugs from other countries.  These are the same techniques found in countries with socialized medicine that are used to keep prices down and ration care.

CAGW first wrote about the folly of adopting an IPI plan for Medicare Part B drugs in an October 2018 blog.  Medicare Part B drugs are medicines administered by a physician in an outpatient setting.

Currently, Medicare Part B pays the physician the average sales price plus six percent for handling costs.  Under the IPI proposed rule, when the average sales price is higher than the prices paid in other countries, Medicare would pay a price based on a pool of foreign drug prices.  The supposed goal of the proposed rule is to bring down Medicare Part B drug prices to 126 percent of what a pool of countries pays, instead of the current 180 percent reimbursement.

At an Axios event held on Wednesday, November 13 in Washington, D.C., Health and Human Secretary Alex Azar said the president wants a more “aggressive” approach by declaring he wants a “most favored nation” status.  Instead of using the current proposed IPI regulation, the president wants the U.S. to have the best price so the rule is being tweaked at the Office of Management and Budget.  Beyond that, little is known exactly how this new pricing proposal would work.

The secretary also mentioned the administration is still working to find a way to allow price-controlled drugs from other countries to be imported to the U.S.  CAGW has long stated that this maneuver is simply adopting another country’s socialized medicine scheme that would likely not save patients much money considering the importation costs and the mechanisms that would be needed to make sure the drugs imported are safe and effective.  Unfortunately, the plan would still open the gates to adulterated and dangerous drugs.

CAGW has discussed the irony of the Trump administration, as well as supposed free-market members of congress and elected officials in the states, promoting the use of price controls, such as adopting some form of an IPI or figuring out a scheme to import from other countries FDA-approved and price-controlled drugs.  At the same time, the administration and Republicans criticize socialized healthcare plans, like Medicare for All, which use prices controls and rationing to keep prices down.

For now, the U.S. remains the world leader in biopharmaceutical research, but there are certainly too many politicians on both side of the political aisle trying to destroy our edge.

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