The relationship between Democrats and former President Trump can be characterized as mixing oil and water. However, there’s one agenda item in which their visions align. Both camps have, in one way or another, signaled support for applying price controls to prescription drugs accessed through Medicare Part D. The previous administration labeled the idea the “most favored nations” rule, while Democrats in Congress have included a version of the proposal in H.R.3.
To some degree, the alignment is refreshing; partisan entrenchment has characterized Washington for so long. But only one small problem: It’s a terrible idea.
Prescription drug costs in the U.S. have skyrocketed in recent years. Spending on pharmaceuticals has jumped by a factor of three since 2000. It’s undoubtedly a problem that warrants action. But lawmakers should be careful to avoid a knee-jerk reaction that will have major negative repercussions down the road.
Capping the cost of prescription drugs to a certain share of what other developed countries pay sounds good on paper. But that assumes these foreign nations pay fair, market-based prices for the products. In many areas, that is not the case. Some foreign governments wield the power of the state to manipulate market mechanisms. As a result, the price tag of pharmaceuticals is artificially low.
In the short run, the cost control scheme would benefit American patients in the form of lower drug prices. But those advantages would quickly be negated in the long run as shrinking research and development budgets—a result of falling revenue for drug companies—translate to less innovation and fewer medicines brought to market.
According to the previous Council of Economic Advisors, the policy could mean 100 fewer new lifesaving treatments and therapies becoming available to the public over the next 10 years.
Given the option, the U.S. shouldn’t pile on with its own set of price controls to compromise the innovative nature of the domestic pharmaceutical industry (foreign price meddling is an issue that should be addressed separately). The COVID-19 pandemic and subsequent development of effective vaccines provide a prime example of the sector’s value. Fortunately, there’s a better strategy.
Lawmakers can address the underlying cause of ballooning drug prices. Hint: It’s not “corporate greed.”
A complex web of middlemen known as Pharmacy Benefit Managers (PBMs) that operate between drug manufacturers and patients is to blame. When they first appeared on the scene, PBMs played a valuable role by helping guide medicine from the production line through health care plans to the pharmacy counter—a service that warranted adequate compensation. But over time, PBMs have learned how to game the system by using their considerable leverage as gatekeepers to the consumer market. They now siphon tens of billions of dollars a year from the pharmaceutical supply chain that should be passed along—at least partially—to patients as savings.
In other areas, the financial racket would likely violate federal anti-kickback laws. But PBMs are skillful contortionists and have been able to skirt those rules at the expense of patients. In the early 2000s, a middleman lobbying arm was able to convince the government to provide immunity from these statutes. Policymakers should renege on that deal and consider legislation that better ensures everyone is playing by the same rules. There’s a difference between profiting and profiteering.
Americans regardless of political affiliation agree that drug prices are out of control in the U.S. But policymakers should be careful that the cure isn’t worse than the disease. Let’s work on lowering pharmaceutical costs without slowing the pipeline of health care innovation.
• Dr. Robert Campbell is a practicing physician in Pennsylvania, past president of the Pennsylvania Society of Anesthesiologists, and a member of the Job Creators Network.