Late last week, President Trump and Health and Human Services Secretary Alex Azar announced a plan to deal with the high cost of prescription drugs in the U.S. relative to the price of the same drugs in other developed countries. The reason for this disparity is well-known: Other countries impose socialized medicine price controls on prescription medicines, while here in the U.S. the price charged is closer to the true market price of the product.
Unfortunately, rather than fighting the socialists, the president has decided to become one with them — at least when it comes to prescription drugs. After spending most of this year rightly condemning governments in Europe and elsewhere for ripping off Americans by imposing below-market price controls on drugs, Trump and Azar basically surrendered to the price controls and announced we would be adopting them ourselves.
This is a total about-face from where they have been all year. Back in May, I was at a Rose Garden speech where Trump and Azar launched their drug-pricing initiative. At the time, Trump said:
That’s precisely the correct response to a country that is imposing an unfair restraint on trade, like a price control. The whole reason we have a U.S. Trade Representative and a World Trade Organization is to prosecute such cases. Trump had it right back in May of this year — American prescription drug customers are getting ripped off, and it’s because socialized medicine schemes in European and other countries are illegally imposing trade-restricting price controls on American-made medicines.
Rather than stick with this very healthy instinct, the president instead has caved to the socialists. By letting the foreign price controls serve as a reference price control here, Trump has put us down the same path of scarcity and rationing all too often seen in the rest of the developed world. The Wall Street Journal related Sunday in an editorial that major cancer drugs widely available in the U.S. (thanks in part to our relative lack of price controls) were only three-fourths as available in the United Kingdom, half as available in Japan, and nearly unavailable at all in Greece. These types of drugs have an average 17-month delay in reaching patients in countries with socialized medicine price control regimes.
Economists of every political stripe get this. Price controls lead to scarcity because no manufacturer is going to make a product only to lose money. That scarcity leads to rationing because there isn’t enough of the product to go around. And rationing means someone — invariably the guys with guns and lawyers in the government — gets to be in charge of the rationing. Socialized medicine doesn’t work for precisely this reason. Medicare for All would be a disaster for precisely this reason. Adopting the price control aspects of government health insurance will be a poison for the United States.
But there’s more. Imposing price controls in the U.S. drug market means that the only source of research and development dollars for the drug industry (absent this, too, being nationalized by the government) goes away. Today’s miracle drug (average development cost of $ 1 billion) is financed by yesterday’s high-priced name-brand drug. Today’s generic drug, which is so affordable, used to be a name-brand drug that had to recoup its research and development costs. None of this is free or automatic. If price controls turn the innovator drug companies into highly regulated public utilities, you’re going to get as many miracle cures out of them in the future as you get new and better ways of paying your sewer bill today: none at all.
We used to have big fights in the Senate about “importation” of drugs (or as we used to call it for some reason, “reimportation”). Those of us against it used to point out that passage of such a law was not about importing the drug — the same drugs were already widely available in the United States — but rather merely importing the socialist foreign price control on the drug. Essentially, Trump has opened the door to that here. He’s starting with a narrow class of physician-administered drugs in Medicare, but no doubt he and future Democratic administrations will seek to broaden this to all Medicare drugs, then all drugs bought through government programs, and from there we’ll pretty much have the same price controls as France and Greece.
Markets do a much better job reducing drug prices than government price controls do, and they do it while making prescription medicines widely available to patients, as opposed to rationed due to scarcity. Almost at the same hour that Trump and Azar announced that they were embracing price controls, a major drug company was announcing a voluntary price cut. Amgen is cutting the price of the cholesterol drug Repatha by 60 percent, and it’s happening because market forces are giving them every incentive to do so. That’s the way it should work in free markets. Have you seen the price of flat-screen televisions lately? Better drugs with more availability and affordability is the default. To the extent it doesn’t happen, there’s usually a government at fault — and that government is probably imposing a price control.
Trump should choose to fight the foreign socialists, rather than surrender to them. Pursue the trade war started in the Rose Garden back in May. Stop Americans from getting ripped off on prescription drug costs once and for all.
Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy.