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November 9 2018

Drug Price Controls that Threaten Research and Development

by Charlotte Hays

An administration proposal on prescription drugs prices could reduce the resources available for research and development of new drugs.

The administration is proposing to link Medicare Part B reimbursements for prescription drugs to the far lower prices in fourteen other developed countries.

We blogged on this immediately after the administration released the proposal.

Now, Veronique de Rugy of the Mercatus Center, one of our favorite economists, elaborates over at Reason on why this is such a bad plan:

For years, most Republicans opposed what was referred to as drug reimportation, or the purchasing of American-made drugs sold in foreign markets at lower prices. Their reasoning was both simple and correct. Buying drugs that are cheaper only because foreign governments have enacted price controls would bring all the same downsides as directly setting our own controls, namely scarcity (shortages and waiting lists) and reduced incentives to research and develop new drugs.

The U.S. market is large enough that foreign price controls alone are not a major threat to research and development. In other words, non-Americans freeload on American consumers who fund the bulk of new drug development. But nothing can insulate non-Americans from the other problems of price controls, which is why newer lifesaving drugs are less available in countries like France and the United Kingdom. And the United States, alas, has no other market on which to freeload. If we destroy the most innovative drug market in the world, then it simply means there will be less innovation and more preventable deaths.

The White House correctly calls out foreign governments for their nonsensical drug policies, which hurt their consumers even though, thanks to the United States, they aren't paying the full price of those bad policies. Unfortunately, the president's idea of "confronting" them by mimicking their policies here at home leaves much to be desired and will have negative and long-lasting consequences.

Initially, the proposals affect only Medicare Part B drugs (drugs purchased and administered by physicians--in other words, drugs such as chemotherapy or vaccinations). But it is sure to spread, affecting drugs across the spectrum.

The new proposals are being developed by the Center for Medicare & Medicaid Innovation, which was an Affordable Care Act creation. The new proposals on drug prices have been compared to ObamaCare--only worse.  

This is not a plan that you would expect from a Republican administration.

De Rugy concludes:

Two days before the White House announced its plan to import foreign prescription-drug socialism to the United States, its Council of Economic Advisers ironically warned that "socialism is making a comeback in American political discourse." How right they are!



Independent Women's Forum is an educational 501(c)(3) dedicated to developing and advancing policies that aren’t just well intended, but actually enhance people’s freedom, choices, and opportunities. IWF is the sister organization of the Independent Women’s Voice.​
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