- - Tuesday, April 9, 2019

ANALYSIS/OPINION:

One of the few issues on which Democrats agree with President Trump and Senate Republicans is lowering the cost of health care, including prescription drugs. Both sides argue that U.S. prescription drug costs are too high — certainly higher than in other industrialized countries — and that government intervention is needed to control these costs.

Recently, Democratic Congressman Lloyd Doggett of Texas and more than 120 Democratic co-sponsors introduced a bill that in their view would achieve just that. Although the goal of making prescription drugs more affordable is important, the ideas in this bill that ignore basic economic principles are not the solution. Enacting it into law would stifle innovation, undermine private property rights and ultimately endanger the health of millions of Americans.

The major problem of the Doggett bill is that it assumes the cost of drugs is high because prescription medicines are often protected for a limited period of time by patents. A patent gives its owner the right during that time period to be an exclusive manufacturer and seller of a new invention — such as a new drug — and prevents copycats from selling the products which the patentee spent time and money developing. Of course, such exclusivity allows the innovator to set the price with the goal of recouping its investment and turning a profit.

The problem is that even the lowest estimates peg the cost of bringing a drug to market at more than $600 million, whereas the cost of copying an already developed drug is essentially negligible. Thus, the only way for a company to recoup its investment is to have a period of exclusivity where its prices cannot be undercut by competitors engaged in copying. It is the price we, as a society, pay for new drugs being brought to the market, and it is the greatest incentive for manufacturers to create new medicines. Once patents expire, generic drugs enter the market to copy and undersell the brand.

The Doggett bill disregards these basic propositions and instead instructs the federal government to “negotiate” with drug manufacturers for a “fair” price. Should the manufacturer balk at accepting the price the government cares to offer, the manufacturer’s patents would be overridden, and other companies, none of which spent money on R&D, would be authorized to sell the drug instead. Of course, there is nothing wrong with negotiations when they are free rather than coercive — the key is that each party can walk away if no agreement is reached.

Under the Doggett bill, however, the government would be given the power not to “negotiate,” but to force drug manufacturers to accept a price that budget-conscious bureaucrats deem “fair.” If the government could in this way take valuable inventions from its owners in order to save money, patents would essentially become worthless. The U.S. Constitution certainly authorizes the government to take private property for public use; however, when the government takes property, the Constitution requires that just compensation be paid to those whose property is taken. But because the bill would compensate manufacturers far below market value, lengthy lawsuits are virtually guaranteed.

President Trump and congressional Democrats are right to object a system where the United States creates the world’s lion’s share of new medicines and yet has its citizens pay the highest prices for these same new medicines. Meanwhile, other countries that don’t want to pay for innovation enact artificial price controls, expecting the cost of medical innovation to be absorbed by American free markets. But the solution is not to adopt heavy-handed policies that will lead to more litigation and stagnate innovation, but to work to ensure that those foreign countries and their citizens pay their own fair share. Only that approach will lower the prices for U.S. taxpayers while assuring continued availability of lifesaving medications.

Gregory Dolin is associate professor of law and co-director of the Center for Medicine and Law at the University of Baltimore School of Law.

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