Biden Proposes Government Price Controls on Prescription Drugs

by | Sep 9, 2021 | Healthcare, Price Controls

The optimal price government should pay for medical care, including prescription drugs, is $0.00.

President Biden’s Department of Health and Human Services has issuedreport proposing to reduce the prices government pays for prescription drugs (good) and proposing government price controls on private drug purchases (bad).

The optimal price government should pay for medical care, including prescription drugs, is $0.00. Lowering the prices government pays for drugs reduces government spending and the burden that Medicare and other government programs impose on taxpayers. Everyone who supports smaller government (read: Republicans) should support reducing the prices Medicare pays for prescription drugs—and should insist the government return those savings to taxpayers, rather than spend them elsewhere. Anything that moves the actual prices government pays for prescription drugs in the direction of $0.00 is a good thing.

Instead, government imposes various policies that drive higher both the prices it and private purchasers pay for prescription drugs. Many Republicans oppose any attempt to reduce the prices Medicare pays for drugs—hypocritically, because doing so increases the size of government.

Yes, reducing drug prices might reduce innovation. But evidence suggests drug prices are so inefficiently high that they are encouraging inefficient innovation. So reducing drug prices is likely the right thing to do on the innovation front, too. If the drug companies that push this line worry so much about barriers to drug innovation, they should lobby to eliminate the Food and Drug Administration or at least to reduce its powers. (And yet they don’t. Weird.)

The Biden proposal would reduce the prices Medicare pays for prescription drugs, which is good. Unfortunately, it does not stop there. It would also take the prices Medicare sets to govern its own purchases and impose those prices on private payers in the form of price controls. It would impose additional price controls on private transactions by limiting how much drug companies could increase their prices from year to year.

Government should not impose price controls on transactions to which it is not a party. Imposing binding price controls on private transactions would lead to (more) drug shortages and reduce desirable, efficient innovation (because market prices would not be able to signal need), just as allowing government to raid the patents of select drugs would. Another mark against the Biden proposal is that it would not return the savings to taxpayers, but would spend the savings elsewhere.

A better strategy would be for Biden to implement Trump’s Medicare Part B drug‐​pricing proposal, which would limit the prices Medicare pays for those drugs without any of this accompanying nonsense.

The fact that President Biden ordered agencies to encourage competition in health care and HHS responded with price controls—which eliminate price competition—indicates that Biden needs to clean house at HHS.

Michael F. Cannon is the Cato Institute’s director of health policy studies and the author of Recovery: A Guide to Reforming the U.S. Health Sector. Follow him @mfcannon.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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