Democrats are proposing price controls on medicine in their latest iteration of reconciliation. Price controls create shortages and discourage companies from entering the market. In healthcare, shortages and a lack of innovation costs lives. Lawmakers must reject this proposal.
Specifically, the bill would give the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. In reality, the Secretary would simply determine the price he or she deems acceptable and impose a steep tax of up to 95 percent on companies who charge more.
In 2023, the Secretary would be able to determine the prices of 10 prescription drugs. The determined price would go into effect in 2026. The number of drugs the HHS Secretary could set prices for would then increase to 15 in 2028 and 20 in 2029. These drug price controls would allegedly raise around $101.8 billion. This, of course, is not where Democrats intend to stop.
Democrats, themselves, are making it clear that this is a step towards socialized healthcare.
Congressman Peter Welch (D-Vt.) threatened that price “negotiations” are just the beginning of their crusade against pharmaceutical manufacturers:
“Don’t underestimate the power of the slippery slope. That’s exactly why pharma fights so hard. They know if we get price negotiation, it’s the beginning, it’s not the end.”
Certainly, the Left intends to one day yield control over all drug price setting.
The government is incapable of setting prices efficiently. In a free market, prices are determined by supply and demand: a balance of how much customers are willing to pay for a product and how much product manufacturers are willing to supply. This results in an equilibrium market price. This price shifts constantly and can even be different based on which state you’re in – there is no possible way for the government to keep up with these rapid changes. Further, the government will never be able to gather or interpret all the knowledge and information necessary for determining the equilibrium.
Because the government is incapable of determining the equilibrium market price, the price they set will always be too high or too low. The consequences of both could result in disaster.
If it is too high, manufacturers will make the product in excess and either the government or individuals will pay more for the product than they otherwise would have. While it’s unlikely that the government would set the price of a drug too high in the beginning, this does become dangerous. If left up to a free market, the price of said drug will likely decline over the years. However, if a price control is set, companies are disincentivized to ever sell below that rate.
If a price is set too low, as would likely be the case under Democrats’ plan, there will be shortages. Manufacturers will supply less of the product than consumers want and/or need. Drug manufacturers will not sell and/or create products they will lose money on.
In 1971, in reaction to a jump in the cost of gasoline, President Nixon imposed price controls (below the equilibrium price) on crude oil and natural gas. This created a real crisis, characterized by massive shortages and long lines at gas stations.
Similarly, drug price controls will discourage investment and innovation in drug development, leading to fewer cures and life-preserving medicines. This, however, would cost lives.
A July 8 CBO report on the current Democrat proposal found that “about 15 fewer drugs would be introduced over the next 30 years.” Still, this is likely an underestimation – the CBO has already revised its original estimate by 50 percent. It’s hard to imagine the extent to which price controls over all medicines would reduce innovation.
Compared to foreign countries who impose price controls, the U.S. has far better access to treatments and cures. According to research by the Galen Institute, 290 new medical substances were launched worldwide between 2011 and 2018. The U.S. had access to 90 percent of these cures. By comparison, the United Kingdom had access to 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent.
Further, the treatments that manufacturers will be discouraged from making will be highly effective ones that treat common, but serious, ailments. After all, these are the drugs price setters will deem most important to take control over. In this way, price controls will disproportionately discourage the innovations humankind needs most.
If Congress wants to ensure lower drug prices, they should focus on strengthening competition in the pharmaceutical industry, not destroying the industry through price controls. Robust competition will ensure prices are driven down for consumers who would, otherwise, be willing to pay any price for a life-saving, life-preserving drug.
Competition, of course, is strengthened by reducing government’s involvement in healthcare.
Lawmakers must reject this step towards a government takeover of healthcare. These proposals, and the Left’s ultimate goal of setting prices for all medicines, will cost lives, not save them.