Donald Trump has once again demonstrated how his ill-conceived populist appeals will quickly commit him to public policies that conservatives have been working to defeat — for a generation or more. His latest example is a casual embrace government-set price controls – this time for pharmaceutical drugs. Government price controls and dictated similar mandates are policies Republicans have opposed for decades, led by fact-based conservative economists and purposeful conservative principles.
Price controls, mandated by government agencies, do not adapt to market conditions at anything other than glacial speed. The real price of consumer products – whether life saving medicine or the latest hair-growth cream – regularly shift at both the wholesale and retail levels. Economists – both conservative and liberal – have repeatedly demonstrated how government mandated price controls decimate expenditures like the research and development process. The incredible freedom scientists have to experiment within the United States over the previous decades has already produced multiple miracle drugs. These same freedoms and liberties are on the cusp of giving us even more ground breaking and innovative medicines. If candidate Trump’s plans were enacted, not only would research and development be severely reduced, but it would also force a severe limitation of the drugs Medicare patients can use today.
Yet here is Trump, naively backing this idea at a New Hampshire rally with rhetoric that is literally indistinguishable from liberal lines used by Sen. Bernie Sanders (I-Vt.) or Hillary Clinton.
This raises the question: if Trump were the standard-bearer for the Republicans – typically the more free-market party, though certainly not perfect on that score – what would stop the United States from becoming a European-style welfare state with its high taxes and low growth rates?
Certainly not Congressional Republicans are not the answer, who have been shying away from the issue. They have repeatedly allowed progressives to frame the debate as a supposed common-sense “negotiation” – as if government-set price controls were just another routine business transaction.
Trump has used the same cynical progressive rhetoric elsewhere. He has claimed the only reason the government doesn’t seize on hundreds of billions in savings is somehow “because of the drug companies.”
Total nonsense and typical Trump bluster. The way Medicare currently purchases drugs is to take the average price of that drug on the private sector. The price of the drug on the private sector is subject to the same laws of supply and demand like any other good or service. However, there is a notable influencing factor which lowers the cost of prescriptions for millions of Americans. Most self-insured companies and the larger health insurance companies employ pharmacy benefit managers (PBMs). PBMs negotiate pharmacy expenditures on behalf of those companies – companies which serve tens of millions more patients than Medicare’s 41 million. Negotiating on behalf of this vast number of U.S. citizens gives the PBMs the “clout” necessary to drive hard bargains – and obtain prices lower than those received by Medicare beneficiaries.
What Sanders, Clinton and others are proposing is to let Medicare demand a given price from the drug companies – regardless of the costs needed to produce that medicine or fund further research. If the company simply couldn’t produce the medicine at the demanded price, the drug would then not even be available to a very large pool of Medicare patients.
The key distinction between the private plans negotiating with the drug companies and Medicare is that people on private plans have some degree of choice about which plan they pay for. Medicare patients have only Medicare as an option so long as the government is paying for their health care.
Many other countries have tried out “magical” economic thinking with price controls. In places like Germany, France and Japan, the best-performing drugs simply become unavailable, forcing doctors to prescribe a higher quantity of less-effective drugs. Thus the average price for each prescribed drug goes down but overall per person spending on drugs goes up. Germany and France, for example, both spend a higher portion of their health care spending on drugs than the U.S. does. Meanwhile, price controls further damage research and development because the government is artificially rewarding low prices rather than efficacy. Companies have a reduced financial reason to invest in better drugs. This is one of the reasons new drug development in the U.S. is dramatically better than the rest of the world.
Trump absurdly claimed price controls would save $300 billion a year. That’s more than 80 percent of the entire amount of money everyone in our country annually spends on drugs. Not just Medicare – everyone in the United States. That’s just fantasy – even Bernie Sanders doesn’t pretend that fantasy could happen. Sanders own website only claims that government mandated price controls would save approximately $40 billion a year.