AMAC Exclusive – By Tom Campbell
Since passage of the Orwellian named “Inflation Reduction Act” (IRA) last month, Democrats have promised that the new legislation will lower prescription drug costs and cap the price of some medications. But while these measures may appear like good policy on the surface, they are actually thinly-veiled government-imposed price controls that are sure to lead to disaster for patient health outcomes and the quality of the U.S. healthcare system.
In their efforts to curry public support for their inflation legislation, Democrats tirelessly repeated that the bill would authorize Medicare to “negotiate” drug prices with pharmaceutical companies. On the surface, this may seem like a good idea; doing so could save taxpayers money by reducing the price the government pays for certain drugs. However, in any fair negotiation, both sides are required to make compromises.
In this case, “negotiation” looks a lot more like government coercion. Under the provisions of the new law, pharmaceutical companies that do not comply with the “negotiations” and accept the price government bureaucrats give them face an excise tax of up to 95 percent on sales of drugs not sold at the negotiated price. Thus, far from being a true negotiation, the Democrats have instituted a “take it or leave it” approach that will end up with imposing socialist-style price controls.
This type of government intervention in the market never works as the politicians claim it will. In 1971, President Nixon imposed price controls throughout the country. This harmful policy led to ranchers not sending their cattle to market and consumers clearing out supermarket shelves. Perhaps the most recognized image is that of gas station lines extending down highways as consumers waited hours to fill up their vehicles. Stations ran out of gas, and laws dictated the days on which Americans were allowed to purchase gas. Ultimately, Milton Friedman’s prediction that Nixon’s price controls would end in “utter failure and the emergence into the open of the suppressed inflation” turned out to be accurate.
Like the price controls of the 1970s, the ones contained in the Democrats’ new inflation legislation are destined to have the same negative effects. This is because, as basic economics tells us, price controls reduce supply while increasing demand, which leads to shortages. The likely result will be Americans having fewer new medications available to them because pharmaceutical companies will be disincentivized from investing in research and development. A study by the Congressional Budget Office (CBO) estimates that 15 fewer drugs will be developed over the next 30 years due to the IRA’s price controls. Another study that examined 110 currently approved therapies for a number of ailments found that only six would have made it to market if the bill’s provisions had been in place prior to their development.
It is also likely that these new price controls on some drugs will cause prices of other drugs to increase, adversely affecting all consumers. Prices, after all, are market signals that indicate to producers there is a profit to be made, leading to more investment and production. Just as it is anywhere in the market, competition is the best way to drive down the price of medicine for the consumer long term.
If congressional Democrats truly want to lower the price of medicine, they should turn away from centralized control and open up the drug market to even greater competition. Currently, the Food and Drug Administration (FDA) forces companies who want to produce cheaper generic versions of drugs to wait 12 years before they can enter the market, while also imposing increasingly more difficult approval processes. Congress could help drive down the prices of pharmaceuticals by making significant reforms at the FDA that remove the burdensome regulatory barriers to market access, such as bringing lowering the exclusivity period for new drugs. Congress should also curtail the agency’s ability to require prescriptions for certain medicines. In the case of insulin, patients frequently purchase the drug and are very familiar with what doses they need. Removing the requirement for a prescription would cause the price of insulin to fall.
While price controls are often politically popular, particularly in a time of high inflation, any short-term gain will have to be paid for in the future. When considering price controls on medicine, we cannot overlook that Americans’ health will suffer as a consequence. It may be true that patients today will pay lower prices for medicine, but future patients could have less affordable options. Worse, many could die waiting for new drugs that now will no longer be developed in their lifetimes.
Tom Campbell is the pen name of a Washington, D.C.-based professional with more than a decade of policy and legislative experience at the state and federal levels of government.
We hope you've enjoyed this article. While you're here, we have a small favor to ask...
Support AMAC Action. Our 501 (C)(4) advances initiatives on Capitol Hill, in the state legislatures, and at the local level to protect American values, free speech, the exercise of religion, equality of opportunity, sanctity of life, and the rule of law.Donate Now
When pharmaceutical companies patent drugs they must do so when they are still in the development stage so they do not actually get 12 years to recoup costs and make a profit. Your idea of lessening this time frame would only accomplish the exact same thing the price controls do. Part of the reason drugs cost so much is the very high cost of development. Some drugs could actually be cheaper if the patents lasted longer. Of course this would require a lessor amount of greed on the part of the manufactures. It is not an easy solution to come up without some kind of control which I don’t think they have come up with yet.
Everything the government touches becomes a disaster. Minimum wage is one of them, price control always backfires for the ones who should benefit.
Same Lenin and Stalin tactics.
These price caps are just a nicer way of introducing slow euthanasia for older citizens. You really believe that the finest medications are going to be introduced into a price controlled market? Nope
Monopolies are discouraged in this country, and in many cases illegal. For a company to invent a life saving or life improving drug and get it approved, it could cost many, many millions of dollars. It is patented and a monopoly is invented. Not only do they have a right to recover their investment, but also make a decent profit. The profit is, after all, the incentive for conducting the research in the first place. This is capitalism. But it is a monopoly, and negotiation with the public over profits, recovery terms etc, must be considered. Draconian measures often demanded by the left, are not the answer.
Free market economy has been preached to me as an underpinning of American greatness since I was a kid. So much for “free markets”!
AMAC, you’re now talking out of both sides of your mouth. Your social action attachment asks for action to tell congress to impose price controls on drugs but then you publish this. What double talking garbage. You’ve lost credibility,
AMAC Action, the advocacy affiliate of AMAC, has never advocated for price fixing and price controls. We’ve been advocating for price transparency in both the outpatient prescription drug and hospital supply chains as a means to lower drug costs for everyone. Our call-to-action campaigns center on the price transparency strategy and we were successful in helping to persuade the Federal Trade Commission to investigate the anti-competitive business practices of pharmacy benefit managers in June. This investigation is ongoing, and we will report the results as soon as they become available.
It”s just a question of time before the Govt. pays for all medical. Doctors will work for the Govt. All drugs will be handled by the Govt. You will go to a Bldg. like a DMV and sit there for 2 hours waiting on your prescription, only to be told they are out of your drug. No idea when more will be in. NO THE DRUGSTORES wont have any drugs. If you can find one still in business. Kyle L.
Once again, there is no common sense with the democrats. They seem to love to implement policies that have time and time agains shown to be failures. It is the definition of insanity, “doing the same thing over and over again, yet expecting a different outcome.” The thing that is most troubling is that too many Americans are just blind followers and will vote democrat no matter what.
Big pharma will just find another way to screw us over. Does anyone really believe they will just agree to accept less money for their drugs…just out of the goodness of their hearts…
price controls are socialist central government tools that never work
There are those who are truly sick and need all the help they can get and there are those who are sick as a result of their own irresponsible habits.The two are not the same and should not be treated as such People need to take responsibility for their own well being and not count on the meds
pharma have help plans that are better than the gov’s
Pharma needs us sick even a little else they can close the shop
I agree with most of your article. However you need to rethink things like lowering the exclusivity period for new drugs. Like price controls, that seems to be a good thing, but in fact it also lowers the profit from developing a new drug. This will somewhat reduce the incentive to develop new drugs.
The negotiated price is for Medicare and Medicaid programs. The price for the rest of the American public will go way up to offset big pharma losses from those 2 government programs. We will have a lot of people walking around sick since they can’t afford to buy meds at the new higher prices. That puts all of us at risk of exposure to illnesses. If government really wants to help, they should put a cap on how much a big pharma company’s profits can be for the USA share of their income. Also the USA tax payer government grant money they get for R&D should be counted as taxable income since it is offend used to suppress cures from others if they don’t hold the patent on it. Law against “predatory” capitalism need to be passed on all fronts, not do away with capitalism as a whole. Monopolies need to be broken up as well. Laws need to be passed stopping our meds from being manufactured by other countries such as China and India, both are “BRICKS” counties with bad records for keeping contamination out of the products. They can’t be trusted or held accountable in any meaningful way.
The best thing that can happen to the American Medical System is DISASTER -THEY HAVE BROUGHT US THE COVID PLANDEMIC CATASTROPE THE KILL SHOTS AND THE BOOSTER SHOTS THAT COMPLETE THE DEATH SHOTS. THEY HAVE BROUGHT US DRUGS MADE FROM PETROLEUM DISTILLATES AND GET OLDER PEOPLE ON MULTIPLE DRUGS. DISASTER FOR THE AMA IS A GOOD THING!
Think wage and price controls under Nixon. This is the party that cannot tell us what a woman is. But they can tell us what the temperature of the Earth is going to be in 50 years. As the commenter below astutely pointed out anything the government touches turns to garbage
Whatever the government touches is going to fail. They can’t even balance a simple budget issue…which is basics–you can’t spend more than the tax revenue collected. 2+2 still equals 4, disregard the the new math the answer is what it always has been, no guessing allowed.
Congress has been asleep at their desks or out campaigning and are more interested in feathering their own personal nests than taking care of their elected duties to the tax payers.
We have a figurehead for President, with mysterious others (who are not elected) leading our country and a legislative body that are pushing non essential papers while our nation is sliding down to a 3rd world country.
How do we fix this without an armed revolution (which is not what we need) then we can end up like Cuba.
Just my thoughts.
In other words, same old, same old. Surely no one can believe a demo/globalist will ever do anything that is not disastrous for America. That’s their goal. Completely destroy the country and build back socialist/globalist. That’s what happens when you elect Godless socialists to the highest office of the land.
We dont need Price Controls: Give US Competition OK
Questions for “Tom Campbell”:
Were the limits on hospital and doctor fees imposed by Medicare Parts A and B in 1965 “actually thinly-veiled government-imposed price controls that [led] to disaster for patient health outcomes and the quality of the U.S. healthcare system.” ?
If not, how are these limits imposed on Medicare Part D drug fees expected “to lead to disaster for patient health outcomes and the quality of the U.S. healthcare system” when the limits on hospital and doctor fees imposed in 1965 did not ?
Actually those suppressed price controls have cause a lot of doctors and a few health facilities not to except you as a patient with that program. I know 2 people that had to change long time doctors when they went on the government programs. One was medicare and the other was combo medicaid and medicare. They both ran into facility issues for rehabilitation. One for hip the other was a stroke. So the argument can be made against government medical interference vs capitalism. Some might even argue that those Doctors are greedy, I argue that you get what you pay for and the best almost always cost more. There are other ways that could have worked to control the affordability of the medical situation besides a total government take over. Lawmakers didn’t want to do diligence. See my posted comment as to some of the other negatives that this law will cause.
My experience with the hospitals and doctors in Chicago has been the opposite.
I have had various treatments over the past six years as a Medicare participant, mostly at Rush University Medical Center but also at Northwestern Medicine and University of Illinois (Chicago) Hospital.
During that time, all providers that I chose accepted assignment from Medicare with normal waiting times for appointments.