Issues & Insights

Price Controls Are A Bitter Pill To Swallow

Tech. Sgt. Mark R. W. Orders-Woempner

 

In the country’s long, grim struggle with the coronavirus pandemic, lawmakers on both sides of the aisle are trying to give struggling Americans a hand up. And with a 50-50 split in the Senate, excessively partisan measures – such as a $15 minimum wage – are fortunately being cast aside as non-starters. However, harmful measures such as price controls on lifesaving medications threaten to stymie health care innovation and make treating pandemic patients all the more difficult. Lawmakers must ensure that COVID-19 relief efforts are stripped of poison pills such as drug price controls, and work with Food and Drug Administration officials to mend a deeply dysfunctional medication approval process. Millions of lives depend on sensible governance.

Currently, lawmakers are considering a mammoth relief package that would cost an astounding $15,000 per household. In their efforts to balloon the debt, Congress faces the prospect of breaking its own rules on new spending. According to budget reconciliation rules, new expenditures must be offset in any legislation that is passed under reconciliation. So, in their search for cost savings, overeager legislators have dusted off last year’s sweeping drug price controls package and plan to attach it to COVID-19 relief.

The Elijah E. Cummings Lower Drug Costs Now Act (H.R. 3) seeks to decrease drug prices by leveraging the market’s largest buyer – Medicare – to force price concessions from manufacturers that are completely outside the market’s natural supply-and-demand structure.  This is done in spite of any rebates or other concessions that manufacturers factor into the list price of a drug. Because the Congressional Budget Office calculated that such a maneuver would save the federal government $456 billion over the next decade, H.R. 3 is slated for inclusion into the final bill.

Backers tout alleged cost savings and lower drug prices, but in reality, such gains would be elusive. These rigid price controls would cut off Americans’ access to critical medications, and manufacturers would be forced to limit their supply or cease production of certain drugs altogether. As a result, health care prices could actually increase in other areas to offset the devastating impact of government intervention.

To see the lasting effects of price controls on drug supplies, look no further than Western European nations, where governments have used a heavy hand over the past half-century to lower costs. Prior to these federal interventions, these industrialized countries were global leaders in drug innovation and manufacturing. Yet over the past 50 years, the share of new drugs originating in countries such as France, Germany, and the United Kingdom has plunged from 45% to 20%. Life-saving medications such as statins have become steadily more difficult to obtain, and European pharmacists cite persistent shortages. The U.S. has been spared from the same issues but could suffer the same fate should price-fixing become the law of the land.

Simply put, sweeping price controls have large, unintended consequences for patients. Unprecedented government intervention would stymie innovation and crush the critical research and development that has us on the precipice of putting this pandemic behind us.

Fortunately, there’s an alternative to embracing failed top-down policies. Lawmakers should study the FDA’s slow response to the coronavirus pandemic and work with the agency to speed up the approval process and lower drug development costs. It takes more than $2 billion and more than a decade to bring a new medication to market. In 2019, the Taxpayers Protection Alliance came up with a list of policy reform recommendations for the FDA, including changing the statistical thresholds required for approval. Taking a more balanced approach to product approval and risk mitigation would save countless lives without the unintended consequences brought on by price fixing.

Now’s the time for bold regulatory reform, not doubling down on the poison pill of price controls.

Ross Marchand is a senior fellow for the Taxpayers Protection Alliance.

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