September 12, 2019

Earlier this week, a draft of Speaker of the House Nancy Pelosi’s drug pricing plan was leaked to the press.

Unsurprisingly, it’s exactly the wrong prescription.

The plan hinges on socialist mechanisms, all of which give the government more control of the healthcare market and will be harmful to patients.

The first, direct negotiations between the government and manufacturers underpinned by an International Price Index, is a socialist policy employed by countries in Europe and Asia to freeload off of American innovation.

The bill empowers the U.S. Secretary of Health and Human Services (HHS) to negotiate on behalf of Medicare with drug manufacturers, leveraging the government’s buying power against private businesses.

The government would set a cap on how much a manufacturer can charge for a drug based on the average price taken from six countries, Australia, Canada, France, Germany, Japan, and the United Kingdom, all of which employ socialist pricing schemes such as reference pricing.

Negotiations for the price of a drug begin at this cap, meaning that the government will not compensate a manufacturer for more than 1.2 times what socialist systems will pay for a drug, regardless of how much a company has invested in a drug’s research, development, testing and eventual FDA approval.

If a company will not agree to this negotiated price, they are further fined 75% of the gross annual sales for the medicine the preceding year.

The plan caps the market and taxes business, immediately hurting the U.S. medical industry.

What’s worse, the bill would force private companies to offer this same, negotiated rate to private insurance, meaning that the government control would begin intruding into the private, free market.

Patients should make no mistake that this plan is the first step, and a large step, towards Medicare for All and fully government run healthcare.

A second policy in the plan would alter Medicare Parts B and D, subjecting all drugs covered by those programs to new, cost caps. The plan would cap prices at the rate of inflation, forcing manufacturers to pay any increase above that rate to the government in the form of a rebate.

This is yet another tax on the U.S. healthcare industry and is misguided at best.

Capping price increases to the rate of inflation is purposefully vague. The policy doesn’t clarify what inflationary price (i.e. the price they’re measuring against) would be used. It’s overly simplistic and reductive.Pharmaceutical pricing is complex, due to price differences between markets, insurers, point of sale, hospitals and other factors. Because of this, measuring how a drugs cost changes year of year is notoriously tricky and not a true measure of the cost of a drug for a patient.

In total, we’re not surprised that Speaker Pelosi’s plan would be so egregiously anti-innovation and pro-government control. But, we’re concerned of the effects these policies would have on patients.

By severely targeting pharmaceutical manufacturers with punitive taxes and market caps, Speaker Pelosi’s plan aggressively skews the healthcare market. To compensate for this change in the business environment and to stem losses from research and development, companies will need to reduce capital investments into new cures.

This, in turn, means fewer new and more effective treatments for patients.

Beyond that negative outcome in terms of public health, that delayed or stopped innovation affects prices.

We know that increased competition brings down prices, by stopping innovation, Speaker Pelosi’s plan likewise slows or stops competition. This is the danger of price caps, it stops the market and stops the forces which develop and better an industry, technology or product.

It’s why groups like the National Taxpayers Union have openly opposed this leaked draft while Americans for Tax Reform said that the plan would “destroy” American healthcare.

The stakes here are high, we can’t allow Speaker Pelosi and the socialists in her caucus to dictate the future of our care, U.S. innovation and our nation’s global competitiveness. They’ll have us leading from behind instead of making our country great again.