By Merrill Matthews
Democrats are negotiating the details of their $3.5 trillion budget plan. Lawmakers want to pay for this wave of new spending, in part, by empowering government bureaucrats to arbitrarily set drug prices.
Lawmakers don’t use that terminology, of course. Progressives speak of merely “negotiating” a fair price with pharmaceutical firms. For many Americans, that sounds unobjectionable. Who wouldn’t want a better deal on prescriptions?
But government price “negotiations” will sap private investment in biotech R&D and prevent millions of patients here in Texas and around the country from accessing existing drugs.
Negotiations would fundamentally upend one of the most successful health care reforms in modern history: The Medicare Part D drug benefit.
That program allows Medicare beneficiaries to purchase subsidized drug coverage from private insurers. And to date, it’s been a wildly popular tool for helping seniors afford their medicines. Here in Texas alone, more than 3 million seniors are enrolled in Part D, according to the Kaiser Family Foundation.
The program is also highly cost-effective. According to the Congressional Budget Office (CBO), Part D’s overall cost in 2013 was 50% lower than the initial projections from 2003, when the program was first signed into law.
A large part of this success owes to the program’s market-based structure. Since insurers must compete for seniors’ prescription drug business, there’s a strong incentive to offer the best quality coverage at the most reasonable price.
This dynamic has not only kept premiums down, it has led to a wide array of choices for seniors. In 2021, Texas’ Part D enrollees could choose from 35 different drug-coverage options, again according to the Kaiser Family Foundation.
Sadly, the Democrats’ budget plan puts this policy in serious jeopardy. In order to find “savings” to offset the cost of their spending spree, these lawmakers want to repeal Medicare’s “non-interference” provision.
Government bureaucrats would dictate the price for many of the most innovative prescription drugs. And it’s not like the companies could just walk away if they aren’t satisfied — what you’d expect if these were real negotiations.
House Speaker Nancy Pelosi’s goal is to impose a fine for not accepting the government’s price: “If a drug manufacturer refuses to participate in any part of the negotiation process or does not reach agreement with HHS, they will be assessed a Non-Compliance Fee starting at 65% of the gross sales of the drug in question,” with that fine rising to 95%.
In other words, if a drug company refuses to accept the government’s price, the government will confiscate 65% (rising to 95%) of the total sales revenue — not just profits — from the non-Medicare sales of the drug.
How many companies, regardless of the industry, would invest nearly $2 billion — the average cost for creating a new drug — knowing that the buyer would dictate the price?
Drug companies won’t just walk away from the “negotiations,” they will walk away from making the drug. The CBO estimates that some 30 new drugs would not be created over the next decade under the Democrats’ approach. Of course, that number depends on the price dictated by the government. The lower the dictated price, the more drugs that won’t be brought to market.
Could one of those be the drug that cures Alzheimer’s, or arthritis, or maybe breast cancer — or a vaccine or treatment for the next pandemic?
Finally, these price controls would undermine one of our country’s greatest economic assets. In the United States, more than 4 million jobs are directly or indirectly supported by the pharmaceutical industry — including about 200,000 jobs in Texas.
Now is the time for Texas lawmakers to push back against Democrats’ irresponsible attack on Medicare. Seniors here in Texas and around the country depend on a vibrant, innovative pharmaceutical market for their health.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.