Democrats’ Price Control Scheme Will Be Disastrous for U.S. Healthcare System

AMAC Exclusive – By Tom Campbell

Since passage of the Orwellian named “Inflation Reduction Act” (IRA) last month, Democrats have promised that the new legislation will lower prescription drug costs and cap the price of some medications. But while these measures may appear like good policy on the surface, they are actually thinly-veiled government-imposed price controls that are sure to lead to disaster for patient health outcomes and the quality of the U.S. healthcare system.

In their efforts to curry public support for their inflation legislation, Democrats tirelessly repeated that the bill would authorize Medicare to “negotiate” drug prices with pharmaceutical companies. On the surface, this may seem like a good idea; doing so could save taxpayers money by reducing the price the government pays for certain drugs. However, in any fair negotiation, both sides are required to make compromises.

In this case, “negotiation” looks a lot more like government coercion. Under the provisions of the new law, pharmaceutical companies that do not comply with the “negotiations” and accept the price government bureaucrats give them face an excise tax of up to 95 percent on sales of drugs not sold at the negotiated price. Thus, far from being a true negotiation, the Democrats have instituted a “take it or leave it” approach that will end up with imposing socialist-style price controls.

This type of government intervention in the market never works as the politicians claim it will. In 1971, President Nixon imposed price controls throughout the country. This harmful policy led to ranchers not sending their cattle to market and consumers clearing out supermarket shelves. Perhaps the most recognized image is that of gas station lines extending down highways as consumers waited hours to fill up their vehicles. Stations ran out of gas, and laws dictated the days on which Americans were allowed to purchase gas. Ultimately, Milton Friedman’s prediction that Nixon’s price controls would end in “utter failure and the emergence into the open of the suppressed inflation” turned out to be accurate.

Like the price controls of the 1970s, the ones contained in the Democrats’ new inflation legislation are destined to have the same negative effects. This is because, as basic economics tells us, price controls reduce supply while increasing demand, which leads to shortages. The likely result will be Americans having fewer new medications available to them because pharmaceutical companies will be disincentivized from investing in research and development. A study by the Congressional Budget Office (CBO) estimates that 15 fewer drugs will be developed over the next 30 years due to the IRA’s price controls. Another study that examined 110 currently approved therapies for a number of ailments found that only six would have made it to market if the bill’s provisions had been in place prior to their development.

It is also likely that these new price controls on some drugs will cause prices of other drugs to increase, adversely affecting all consumers. Prices, after all, are market signals that indicate to producers there is a profit to be made, leading to more investment and production. Just as it is anywhere in the market, competition is the best way to drive down the price of medicine for the consumer long term.

If congressional Democrats truly want to lower the price of medicine, they should turn away from centralized control and open up the drug market to even greater competition. Currently, the Food and Drug Administration (FDA) forces companies who want to produce cheaper generic versions of drugs to wait 12 years before they can enter the market, while also imposing increasingly more difficult approval processes. Congress could help drive down the prices of pharmaceuticals by making significant reforms at the FDA that remove the burdensome regulatory barriers to market access, such as bringing lowering the exclusivity period for new drugs. Congress should also curtail the agency’s ability to require prescriptions for certain medicines. In the case of insulin, patients frequently purchase the drug and are very familiar with what doses they need. Removing the requirement for a prescription would cause the price of insulin to fall.

While price controls are often politically popular, particularly in a time of high inflation, any short-term gain will have to be paid for in the future. When considering price controls on medicine, we cannot overlook that Americans’ health will suffer as a consequence. It may be true that patients today will pay lower prices for medicine, but future patients could have less affordable options. Worse, many could die waiting for new drugs that now will no longer be developed in their lifetimes.

Tom Campbell is the pen name of a Washington, D.C.-based professional with more than a decade of policy and legislative experience at the state and federal levels of government.