The Push Resumes to Destroy...
Why exactly do various politicians – many Democrats along with some Republicans – want to wreak havoc on an industry dedicated to making sick people better? It’s a bit of a mystery to me.
Before Thanksgiving, Congress passed Medicare legislation. On one side of the ledger, the bill makes tax-free health savings accounts (formerly known as medical savings accounts) permanent and available as a choice for many Americans. The passage of HSAs will make health insurance coverage more affordable for many, including small businesses, and reform the marketplace so that consumers have greater control over their health care decisions, as well as over how health care dollars are spent. That’s positive.
However, the legislation also vastly expands Medicare to cover prescription drugs. Medicare costs have long been careening out of control. This expansion of the program will further jack up costs at the expense of taxpayers – both individuals and businesses. But additional costs could easily materialize in another form, that is, price controls.
In fact, the bill had just passed Congress when the push for price controls quickly resumed. In the Democrats’ weekly radio address, U.S. Rep. John Tanner (D-TN) said the new Medicare legislation “would do little to address the cost of drugs.” Republican Rep. Jo Ann Emerson from Missouri declared last week: “We cannot continue to force Americans to make bus trips over the border to obtain reasonably priced prescription drugs.” These statements might sound innocuous or even nice, but the underlying point is to impose or import price controls without any serious thought given to the consequences.
The Medicare legislation allows reimportation of prescription drugs from Canada only if the U.S. Health and Human Services (HHS) secretary can certify the drugs are safe. HHS Secretary Tommy Thompson has said that the department cannot make such a promise.
Beyond the safety issue is the question of why are drugs cheaper in nations like Canada. Many politicians drool over the prospect of allowing the reimportation of drugs from Canada and other nations because those countries impose price controls. Allowing reimportation from such nations effectively would import those price controls.
Some say, so what? Well, then we get back to the creation of life-enhancing, life-saving medicines by the prescription drug industry. Why would a business undertake the enormous risks and costs of researching and developing new and improved drugs if prices, and therefore returns, are limited by politicians and government bureaucrats?
After all, it isn’t exactly cheap and easy to develop new medicines. The Pharmaceutical Research and Manufacturers of America points out that, on average, only 20 out of 5,000 compounds screened enter preclinical testing; and only one in five drugs entering clinical trials is approved. It takes 10 to 15 years to bring a new drug to market at a cost of more than $800 million.
Make no mistake, the U.S. is the global leader in producing new drugs in large part because we are not foolish enough to impose price controls. Let’s hope our elected officials do not allow the foolishness of other nations to be imported into the U.S. If political pandering and expediency wins out over fundamental economic common sense, then the costs will be severe for anyone who wishes to see research and development of new medicines continue.
It’s actually quite simple. If one stands for imposing or importing price controls, then one stands against the development of prescription drugs that improve and save lives.
Raymond J. Keating serves as chief economist for the Small Business Survival Committee.
