As America continues to dig its way out of the economic and public health impacts of the coronavirus pandemic, the Trump administration and state and local governments have waived or suspended hundreds of regulations.
These combined efforts have given American families, businesses and public agencies the flexibility and breathing room needed to combat the disease and the economic downturn, and many of these deregulatory efforts should be here to stay. They include several positive steps in the health care space, including increased flexibility for telehealth and loosening of restrictions for health professionals practicing across state lines.
Unfortunately, two new executive orders announced by President Trump on July 24, 2020, threaten to undermine the progress the administration has made on the deregulatory and health care fronts during the COVID-19 pandemic. One executive order mirrors an earlier proposal, called an International Pricing Index (IPI) for Medicare Part B, and another expands on the administration’s efforts to allow Americans to import prescription drugs from foreign countries.
While these proposals have been framed as helping Americans get a better deal on their prescription drug costs, they will fail to do so. Any kind of international pricing index or “Most Favored Nation” (MFN) clause for Medicare Part B would simply implement foreign countries’ bad policies, like price controls. Some of these countries have socialist health care systems, which the administration has rightly condemned.
And as a practical matter, price controls don’t work. As more than 150 economists wrote in a 2018 letter to Secretary of Health and Human Services Alex Azar. “Setting price controls at below-market rates,” the economists wrote, “leads to shortages, squeezes the cost bubble toward some other portion of the economy, and imposes a deadweight cost on society.” This is basic economics: these kinds of price controls simply don’t work.
The White House acknowledged this in their Statement of Administration Policy on H.R. 3, House Speaker Nancy Pelosi’s prescription drug proposal. The Council of Economic Advisers wrote that these kinds of price controls “would affect as much as one third of drugs under development,” hindering drug innovation and causing many drugs never to be developed or brought to market under this kind of regime.
This made sense then and certainly does now. It is therefore puzzling the administration is insisting on similar price controls through an IPI or MFN regime for Medicare. Neither IPI nor MFN will convince other countries to pay prescription drug prices that reflect the actual costs for bringing drugs to market. Instead, they would have the U.S. attempt to mimic the heavy-handed government price controls of other countries for Medicare, to the detriment of tens of millions of Americans in private insurance.
Medicare patients could ultimately suffer, too, since the MFN and importation executive orders would make it much more expensive for American manufacturers to research, develop and bring to market new treatments and cures. This ultimately means taxpayers foot a higher bill, too, as government health care programs shell out more for longer hospital stays, surgeries and costlier therapies that can’t rely on breakthrough drugs.
The Trump administration has gotten health policy exactly right for patients and taxpayers before. Whether it’s expanding coverage options available to consumers or making telehealth services an affordable option for millions of American seniors, policymakers in the administration have advanced initiatives that benefit patients and taxpayers. The executive orders on MFN and importation could not only undo these laudable gains but actively harm the nation’s fight against the coronavirus. The American people will not be impressed by such results. Mr. Trump should go back to the drawing board on these two executive orders and produce pro-taxpayer, pro-consumer health reforms.
• Adam Brandon is president of FreedomWorks and Tom Schatz is president of Citizens Against Government Waste. Pete Sepp contributed additional research for this piece.