George Gibbs Center for Economic Prosperity

Appeasemen⁠t⁠ on Drug Pr⁠i⁠ces Unaffordable

By: Dr. J. Robert McClure / 2019


January 18, 2019

By: Robert McClure

On most issues surrounding the economic policies of this administration, there is a great deal to be positive about. Thinking about the 2017 Tax Cuts and Jobs Act (TCJA) alone, the president worked hand in hand with Congress to pass and enact a piece of sweeping legislation, one pivotal to our nation’s economic expansion.

Following eight years of slow economic progress, the GDP grew more than two percent for 2017.

Projections are for possibly four percent growth for 2018.

This, along with much of the regulatory reform both the president and the Congress have enacted in the first two years of the Trump administration, are all textbook conservative economic policies bringing consistency to the business climate and economic growth.

These policies also usher in an overall positive outlook.

It’s why the administration’s approach to drug pricing is all the more baffling to those of us who know how markets ultimately serve innovation and global healthcare advances.

First off, with respect to international drug prices and patent infringement, it must be acknowledged that the administration has been dealt a pretty tough hand to play.

It’s no secret that the way European countries get cheap drugs is by blackmailing drug companies into below-market pricing by threatening to steal drug formulas and produce cheap generics. This is blatant freeloading on American innovation. Ultimately, patients in the U.S. (and insurance companies) are forced to pick up the slack.

Translation? We pay more. With that reality in place, what should the administration’s approach be?

Given the president’s reputation as a skilled negotiator, one would hope that all available leverage would be brought to bear on the European Union (EU).

In fact, back in May of 2018, the president intimated just that when he said, “It’s unfair and it’s ridiculous, and it’s not going to happen any longer. It’s time to end the global freeloading once and for all. I have directed U.S. Trade Representative Bob Lighthizer to make fixing this injustice a top priority with every trading partner . . . America will not be cheated any longer, and especially will not be cheated by foreign countries.”

These are strong words coupled with a head-on approach.

It’s a wonder to most, then, that the administration has managed to pull a “complete 180,” embracing the same nefarious approach the EU has been employing.

The president recently indicated a willingness to concoct a drug price control index, setting prices against some measure of the prices in a basket of countries.

The fact that this is a very bad idea can’t be stressed enough.

Whether we wish to admit it or not, prescription drugs will follow the laws of supply and demand. Pesky little concepts we all learned on the first day of high school economics class.

Set a price ceiling, and the result will be supply shortages, and ultimately rationing. Think this won’t happen? It already is.

Due to price controls, shortages of cancer drugs and rationing are already happening in the UK, Japan, and Greece.

If we go down this road, the results will be disastrous. Expect shifts away from investments in research and development.

When an innovative new drug can cost as much as one billion dollars to bring to market, the only way to recoup those costs and fund the next innovative new drug is via — you guessed it — sales and profits.

When drug shortages wreak havoc on patients here in the U.S., the only possible path will be rationing. Then the ultimate question will be who is deciding the rationing? If the left gets their way and the government oversees all our healthcare decisions — are you going to put your faith in their benevolence?

That could be where we are headed.

However, there is a release-valve to this dangerous path — on both drug pricing and healthcare in general. The solution lies in the president embracing his agenda and strategies reaping policy success already — the commitment to market principles, to leveraging our negotiating positions to ensure that bad actors are dealt with, and to working with Congress, and our partners, in the healthcare arena to protect patients from blackmailing foreign governments freeloading on American innovation.

Dr. Robert McClure provides expert perspective on current issues facing our nation and his home state of Florida, the third-largest state in the nation and a policy bellwether for the country. Recently named one of the Most Influential People in Florida Politics, Dr. McClure serves as the President and CEO of The James Madison Institute, Florida’s premier free-market think tank. He is a frequent commentator on television and talk radio programs and has lectured nationally on diverse policy issues. Dr. McClure has been published numerous times at both the state and national level on topics including property rights, tax policy, health care, and education reform.

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