President Trump Can Fix Biden’s Price Fixing Fiasco
The High Cost of Price Controls: How Government Interference Threatens Drug Innovation and Patient Care
On his final weekday in office, former President Biden took one last parting shot at the healthcare industry by adding fifteen new drugs to the Medicare price negotiation list created by the Inflation Reduction Act. This action was just the latest attempt to impose price fixing practices on prescription drugs. These policies are harming patients and slowing the innovation of new drugs. A swift course correction should be a priority for the new Trump administration.
While the intention to lower drug prices may be noble, the unintended consequences of the Biden administration’s actions – and states seeking to control prices or import foreign drugs – are significant.
The United States produces the vast majority of the world’s pharmaceutical innovation. This is due in large part to strong intellectual property protections and a free market that encourages investment and innovation. New drug development often takes 10 to 15 years and costs $2.6 billion on average. Only a small portion of the drugs developed make it to market, and an even smaller number recoup their development costs.
The Inflation Reduction Act ended a long-standing policy of government non-interference that was enacted through Medicare Part D. Proponents claimed the government could negotiate lower prices than the free market. Unfortunately, government negotiations are one-sided. With the power of the entire Medicare program behind them, there is little negotiating involved, and the government is essentially fixing prices. Unsurprisingly, numerous lawsuits from the manufacturers have ensued.
Government efforts to set prices have a long history of disastrous consequences, dating back to the Roman Empire when Emperor Diocletian set maximum prices for goods and wages. Diocletian’s price setting led to fewer goods being produced, a black market with exorbitantly high prices, and his removal from the throne.
That’s a scenario no one can afford with life-saving drugs. Investors do not want to risk millions of dollars on drug research and development, which is already a gamble, if the government can limit his or her ability to recoup that investment.
To bring down the cost of prescription drugs, lawmakers should examine the pharmaceutical supply chain. Pharmacy Benefit Managers (PBMs), distributors, and insurers play a significant role in the final cost of a drug. Requiring more transparency from these groups and eliminating abuse of government like 340B would be more effective than allowing government to impose price controls.
Advancements in science and technology have led to new types of therapies and in some cases even personalized medicine created specifically for an individual’s genetic makeup. Sadly, the Inflation Reduction Act has already reduced R&D investment in new drugs by 70 percent. Less investment means that the discovery of cures and new treatments for cancer, Alzheimer’s, and other life-threatening diseases will be severely hindered.
Everyone should have access to affordable, life-saving drugs. But government price setting will cost us in cures. Instead, President Trump, along with federal and state policymakers, should look to the supply chain, require increased transparency, and encourage new investments by allowing free market forces to flourish in health care.