Pharmaceutical prices: the madness of prescription drug price controls

Senator Bernie Sanders (D., Vermont) interviews former Michigan Governor Jennifer Granholm during a hearing to consider her appointment as Secretary of Energy on Capitol Hill on Jan.27, 2021. (Graeme Jennings / Pool via Reuters)

Hbefore It’s a fact you’ll rarely hear quoted in Congress: Prescription drug prices have been falling – for years – even as consumer prices elsewhere in the economy have risen sharply.

Prescription drug prices fell more than 3% between April 2019 and April 2021. By comparison, gasoline prices have increased by 50% over the past year.

But whatever the facts: stepping out of his lakefront dacha to scold denunciations of “greed” and “corruption,” Senator Bernie Sanders, the Vermont socialist who dominates the Democratic Party though he isn’t. not a member, doing last-minute press for drug price control.

It is a fundamentally silly but old and popular idea, embraced not only by left-wing populists like Senator Sanders, but also by right-wing populists like Donald Trump, whose rhetoric was no different from that of the squeaky old socialist when ‘he said that “drug companies get away with murder” and that the only appropriate response was federal price controls. President Trump was at least less timid: He called for federal action that would see Washington “set the prices,” while most supporters of the proposal claim it is “negotiating” them.

Of course, drug prices are already negotiated – that’s what the markets do. If sellers had the ability to unilaterally set prices without buyer’s intervention, a Big Mac would cost $ 50 and a Ford pickup would cost $ 100,000. Consumers, both end users and intermediaries such as insurance companies, also have a say. They can use the magic word: “No”.

Granted, some medical expenses are life and death matters in which patients will pay any price to get what they need, but most are not. It is also true that our markets are distorted by too much dependence on “third party payers”, which weakens consumers’ sensitivity to prices. Not surprisingly, we have seen the most efficient negotiation of drug prices in situations where consumers pay out of pocket and are therefore encouraged to pay close attention to price. This sometimes produces strange results – branded Viagra still costs around 40 times the price of its generic equivalent – but it also produces good results overall. And that is why, despite the rhetoric we have to endure from Senator Sanders et al. – Prescription drug prices have actually fallen in recent years, according to BLS data. This drop is even more remarkable in the context of so much inflation elsewhere in consumer prices.

Senator Sanders is proposing to “fix” a problem that is already on the way to being solved organically.

Hysterical critics accuse Democratic skeptics such as Senator Kyrsten Sinema of having been corrupted in one way or another by pharmaceutical interests, but our actual national experience with price controls is enough to arouse suspicion of responsible Democrats as well as Republicans. We know from long and unfortunate experience that price controls do not produce low prices – price controls produce shortages and rationing. We saw it in Venezuela under socialism, we saw it in the UK in pre-Thatcher times, and we see it in American cities where rent control laws produced housing shortages. for buyers and renters with low to moderate incomes. income. Some Americans – at least, those as old as Senator Sanders – should also remember the failure of wage and price controls under Richard Nixon. The underlying economic mechanism is easy enough to understand: with a few exceptions, price controls are designed to force sellers to sell below market prices, and sellers respond by abandoning these unprofitable (or less profitable) products. ) and producing more profitable products instead. . This is precisely what the drug companies have warned against when it comes to “negotiating” federal prices – rather than losing money selling drugs at artificially reduced prices, they will stop selling those drugs altogether and focus their activities on more profitable products.

But this is only one of the possible ways that these “negotiations” go wrong. The same people who complain that the pharmaceutical industry is spending their money to lobby against price negotiations never seem to understand that if plan A fails then plan B is to use that money and the lobbying power to work. to dominate the price negotiation process and tilt it in its own favor. We’ve seen this dynamic at work in many other contexts, which is why multi-billion dollar agribusiness companies and privileged manufacturers benefit from various federal subsidies and price protections. Price support and federal regulations are the reason you are already paying too much for milk and sugar and for anything that contains milk or sugar.

It is, at bottom, a philosophical problem.

While it is true that “socialist” is too often presented as a vague term of abuse, to understand the congressional struggle over prescription drug prices, it is necessary to understand that the chairman of the Senate Budget Committee, Bernie Sanders of Vermont, is a self-styled socialist. We understand Democrats had to do something with Senator Sanders, but giving a Socialist responsibility for the Budget Committee has always been a terrible idea – the Special Committee on Aging would have been better suited for Senator Sanders, who is not only old enough. remember the former Soviet Union, but he’s old enough to have spent a honeymoon there. Senator Sanders is a radical who remembers when a Red State was a Red State.

Senator Sanders believes that imposing a command and control model on pharmaceuticals will magically eliminate the shortage, when all historical evidence supports that it will only make the shortage much more acute. Command and control policies do not solve economic problems – they replace a set of problems with a set of new and usually worse problems, replacing many economic actors and decision-makers with a single powerful decision-maker. In the United States, the closest thing to socialized medicine is Medicaid, which is a disaster, and the veterans health system, which is a national disgrace.

If centralized planning was the way to achieve abundance and affordability, Venezuelans would not have been reduced to slaughtering zoo animals for food.

There are things we can do to make prescription drugs and other health products and services more affordable. The approval process for new drugs is too long, too expensive, and too cumbersome – and the light-speed deployment of COVID-19 vaccines shows we can go faster while moving safely. And while US patent law has been a boon to pharmaceutical innovation, there is room for improvement here as well, particularly with regard to “permanence”, the strategy of using superficial changes. pharmaceuticals to extend patent protection and keep generic competitors out of the market. Marlet. Unfortunately, the most important and effective strategy is also one of the least popular: shifting medical costs from third-party payers to consumers themselves, thus allowing the emergence of an ordinary and price-sensitive consumer market for most medical goods and services.

The healthcare market, like any other market, is a delicate ecosystem. Senator Sanders suggests throwing Molotov cocktails there. Right now we have an abundance of prescription drugs at slightly lower prices. We can build on that, letting markets and innovation do their job while providing financial support where it is needed and prudent regulation where it is warranted.

Or we could try to put an inert socialist dingbat that has never had a real job in charge of our health care and see how it works.

Something to consider

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Editors are the senior editorial management of the National exam magazine and website.

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About Alex S. Crone

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