No Price Controls!

A Note From Americans For Tax Reform

The U.S. is the best in the world when it comes to developing innovative, life-saving and life preserving medicines. Because of this, the U.S. is leading the way when it comes to developing COVID-19 vaccines, with several promising candidates entering the final stages of medical development.

However, foreign countries have been freeloading off this American medical innovation for decades through crushing price controls and other market distorting government rules and regulations.

We should reject policies that adopt foreign price controls like a “most favored nation” clause or the International Pricing Index (IPI).

Rather than fighting price controls, these policies would adopt them.

The IPI would do nothing to stop foreign freeloading

The administration has recognized the damage that adopting foreign pricing would have on American innovation, as noted in a report released in February 2018 by the president’s Council of Economic Advisors:

“If the United States had adopted the centralized drug pricing policy in other developed nations twenty years ago, then the world may not have highly valuable treatments for diseases that required significant investment.”

Because of these foreign price controls, the prices paid by other countries for pharmaceuticals is less than what is needed to incentivize the development of innovative new medicines.

There is no negotiation and foreign governments often force innovators to accept lower prices in a “take-it-or-leave it” proposition. This results in reduced or restricted access to new medicines and higher prices for those medicines that enter the market.

Proposals like the IPI or most favored nation clause would base U.S. prices off the prices of foreign countries.

Adopting these price controls will result in the same negative outcomes to our healthcare system as those overseas – there will be less medical innovation leading to fewer cures and healthcare shortages for American patients.

This is not hypothetical. Of the 290 new medical substances that were launched worldwide between 2011 and 2018, the U.S. had access to 90 percent. By contrast, the United Kingdom had 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent. Studies have also found that price controls used in Europe delay new drugs coming to market by an average of 14 months.

The fact is, developing new medicines is a complex, time consuming process. A manufacturer must invest a substantial amount in research and development. In addition to these costs, the clinical development and approval times average 90.3 months for a pharmaceutical drug and 97.3 months for a biologic. Given this extensive process, there is a clear linkage between the ability of manufacturers to recoup their investment and their willingness to innovate.

The IPI would move us closer to socialized healthcare

Conservatives have long opposed price controls because they utilize government power to forcefully lower costs in a way that distorts the economically-efficient behavior and natural incentives created by the free market.

In contrast, progressives embrace price controls as a way to expand government control over the free market.

Socialized healthcare, which the left often calls “Medicare for All,” would impose price controls on the entire healthcare system. These price controls would reduce access to care and create healthcare shortages, as has occurred in other nations that have socialized healthcare, like Canada and the United Kingdom. In the UK for instance, there was a shortage of 10,000 doctors and 43,000 nurses in 2019, with 9 in 10 managers in the National Health Service saying that too few doctors and nurses presented a danger to patients. At any one time, 4.5 million patients were waiting for hospitalization.

The IPI will threaten millions of high-paying jobs

Not only will the IPI harm American patients in the form of fewer treatments and worse health outcomes, it will also harm the economy because of a decline in American R&D.

This medical innovation is enormously beneficial to American workers and to the economy.

Manufacturers invest over $100 billion in the U.S. economy every year, directly supporting over 800,000 jobs.

When indirect jobs are included, this innovation supports 4 million jobs and $1.1 trillion in total economic impact. Pharmaceutical jobs are also high paying – the average compensation is over $126,000 – more than double the $60,000 average compensation in the U.S.

The IPI is supported by progressive leaders like Nancy Pelosi and Bernie Sanders

Supporters of the international pricing index have claimed the concept is a free market proposal that will incentivize manufacturers to negotiate better deals. However, this assumes foreign countries now have an incentive to let manufacturers get a better deal and that manufacturers did not negotiate the best outcome already.

In reality, there is nothing “free market” about this system, which is why the International Pricing Index has also been proposed in legislation released by Bernie Sanders.

The proposal was also included in House Speaker Nancy Pelosi’s legislation that would force manufacturers to accept government set prices or face a 95 percent excise tax.

Pelosi’s proposal could prevent 100 lifesaving and life-preserving medicines from being created over the next decade, according to the Council of Economic Advisers.

It could also threaten access to existing cures as the95 percent excise tax could hit up to 250 treatments including cures for leukemia, cancer, MS, schizophrenia, bipolar, epilepsy, lung disease, high blood pressure, diabetes, HIV/AIDS, and hepatitis C.

The IPI relies on Obamacare

The IPI is being proposed through the Obamacare Center for Medicare and Medicaid Innovation (CMMI).

There is long standing conservative opposition to CMMI based on the concern that it bypasses Congress’ power over the purse as enshrined in Article I of the Constitution.

CMMI was created under Obamacare with the goal of increasing efficiency of healthcare programs. The agency was tasked with conducting demonstrations over new health care delivery and payment models in Medicare, Medicaid, and the Children’s Health Insurance Program with the intent of reducing healthcare costs.

However, in its relatively short history, CMMI has pushed demonstrations with little evidence they would result in savings, while strong-arming healthcare providers and patients into participating.

The agency is also not under the normal appropriations process – Obamacare gave CMMI $10 billion every decade in perpetuity. As a result, Congress is limited in its ability to conduct routine, necessary oversight and the executive branch has the ability to use this agency for their own partisan priorities.