By: Ryan Ellis
When President Trump delivered his annual State of the Union address in early February, there was a universal expectation in the conservative healthcare world that he would use the occasion to launch his signature International Pricing Index plan after over a year of delays. But he didn’t end up mentioning it at all. What does this mean for the Trump administration’s controversial drug plan?
Back in late 2018, Health and Human Services Secretary Alex Azar announced a controversial new idea to impose price controls on physician-administered drugs inside of Medicare. Not to be confused with the oral prescription pills most people associate with the drug-pricing debate, the medicines inside of “Medicare Part B” tend to be more complex products that have to be injected into patients by trained medical professionals. (Think oncology treatments, but the range of illnesses served is wider than just cancer.)
These types of drugs are subject to government price controls all over the world. Here at home, there is an admittedly imperfect model Medicare uses to determine the market’s average sales price of these drugs and pays at that rate. What HHS proposed was to scrap this method and replace it with an average of the price-controlled levels set by socialized medicine countries in Europe and elsewhere around the globe — the IPI.
The conservative healthcare movement quickly pounced on the idea, recognizing that the average number in a basket of foreign government price controls is certainly no better than our own government setting a price (and may be worse). Conservatives have long held that government price controls are not only bad from an ideological perspective (empowering the government to decide prices that should be subject to market competition) but also make no sense practically.
A price control is either going to be set too high or too low.
If it’s set too high, no one will be able to afford the good. The provider will lose money due to having excessive inventory, and, ultimately, no one gets to buy or sell. If a price control is set below the fair market rate (as would be the case with Trump’s plan), there will be a run on the product, provider inventories will be exhausted (leading to scarcity), and providers will exit what has become an unprofitable market.
Having wrecked a market that before was able to provide enough drugs to everyone who needed them, the Trump administration’s proposal, if implemented, would inevitably have to deal with the scarcity it would create by exercising even more government intervention and control.
Similarly to other socialized medicine regimes around the world, IPI price controls dictated from the bowels of the Health and Human Services building in Washington would dry up access to various medicines. The government would then need to impose a strict rationing regime, which in the case of cancer drugs means literally deciding who gets to live and who gets to die.
These are not academic, theoretical concerns. In the countries from which our new indexed price control would be derived, patients today don’t get the drugs they need.
There are delays of months or years in getting these drugs to France, Greece, and Ireland. Nearly every developed nation besides ours has chronic drug shortages. There are long wait times in places such as Canada, the United Kingdom, and Sweden. Seven of the 17 IPI reference countries have a single-payer healthcare system similar to the Medicare for All plan Democrat presidential candidate Bernie Sanders wants to impose.
That’s why on the eve of the State of the Union speech, nearly 55 conservative groups sent a joint letter to Azar urging the withdrawal of the proposed rule. These same groups and more also sent a similar letter to Trump and congressional Republicans asking them to swear off any health reforms that relied on price controls, including the IPI.
This activism was not isolated. It was the result of over a year of consistent, determined, and respectful opposition to a very bad idea. To the extent that the Trump administration keeps the price controls rule on ice (and perhaps pivots to a trade dispute with countries that impose price controls on these and other American manufactured drugs), the coalition behind his reelection will remain intact.
However, springing price controls onto a highly charged political debate over healthcare will only serve to split the president’s base and distract from the good work he and Azar have done on healthcare reforms in general and drug reforms in particular. It also would take the focus away from Speaker of the House Nancy Pelosi, who has refused to enter into good faith negotiations with congressional Republicans on drug reforms. (There are dozens of bipartisan starting points that were offered as alternatives to her own drug price bill.)
Conservatives want to work with Trump and Azar on market-based solutions to the drug-pricing issue. Our hope is that the president’s State of the Union address was the beginning of this more productive conversation.
Ryan Ellis (@RyanLEllis) is president of the Center for a Free Economy and a contributor to the Washington Examiner’s Beltway Confidential blog.
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