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Government Price Controls are Bad Medicine for Healthcare Consumers

By TCCRI Staff March 2, 2022

In last night’s State of the Union Address, President Biden recycled yet another formerly rejected policy proposal when he urged Congress to lower prescription drug prices in order to help address growing healthcare costs. The “Build Back Better” plan does contain some provisions allowing the federal government to negotiate for certain high-cost Medicare drugs;[i] however, Biden appears to be looking to expand government price-controls to include additional Medicare and private sector medications.

While the President’s speech was not heavy on policy details, we likely only need to look at the tenets of a similar proposal by Speaker Pelosi back in 2019[ii] to preview how this proposal might play out. Borrowing from practices used in socialized medicine, Pelosi’s idea included an international pricing index (IPI) based on other countries’ drug costs, authorizing the federal government to directly negotiate the prices of up to 250 drugs, and penalizing pharmaceutical manufacturers that refuse to participate in so called “negotiations.”

Although addressing prescription drug costs is an admirable goal, government price controls are never the answer. The United States produces the most scientifically advanced, innovative medications in the world, due in large part to free market principles that provide companies the incentive to compete and create life-saving drugs. Implementing government price controls represents a reversal from the current market-based competition-driven approach in favor of practices that are predominantly found in single-payer healthcare systems. These policies completely ignore the resources involved in scientific advancements and bureaucratic requirements (i.e. the cost of research and development and the decades it can take for a drug to reach the market).[iii]

It would be wonderful if the government could fiat safe, effective, and inexpensive medications into existence, but that notion is simply not based in reality. Such “reforms” might falsely depress costs for some medications in the short term, but there are detrimental long-term consequences. As former Congressman and U.S. Health and Human Services Secretary Tom Price explains, if billions of dollars are pulled from manufacturers in the form of government price controls, fewer drugs will ultimately come to market and the U.S. should expect to cede its “leadership in the drug innovation arena” to countries such as China.[iv] One policy expert explains how the European Union (EU) has experienced these consequences over the last 20 years:

Before its price controls, EU firms were the global leaders in biopharmaceutical innovation. Since the implementation of price controls, research spending in the EU has stagnated, much of it diverting to the U.S. where price controls do not exist. Over time, these diverging trends have enabled the U.S. to become the global innovation leader.

As a result, the EU has endured many adverse consequences. Access to existing medicines has faltered. While the U.S. has access to nearly 90% of newly launched medicines, patients in Germany only have access to 71%. In France, the access rate is even lower at 48%.[v]

Decreasing competition and autonomy does not decrease prices. The only reductions will be in research, innovation, and ultimately, in availability of treatments. Should President Biden and the Democrat-controlled Congress implement widespread government price controls for prescription drugs there will be real costs- and American healthcare consumers will pay the price.

[i] https://www.kff.org/medicare/issue-brief/explaining-the-prescription-drug-provisions-in-the-build-back-better-act/ [ii] https://thehill.com/policy/healthcare/462119-pelosi-unveils-signature-plan-to-lower-drug-prices [iii] https://www.actuary.org/content/prescription-drug-spending-us-health-care-system [iv] https://thehill.com/opinion/healthcare/547207-the-best-way-to-tackle-drug-prices?rl=1 [v] https://www.forbes.com/sites/waynewinegarden/2019/10/18/price-controls-are-not-the-answer-to-expensive-drugs/?sh=6b0a73bd715e