President Biden is proud of his price controls. Federally dictated prices for prescription drugs are “a key part of Bidenomics,” according to the President. Yet these top-down mandates are already killing research into life-saving cures, and by one count, at least 135 new drugs will never come to market, including many cancer drugs. And now states may soon double down on this failed approach, capping the price of drugs in ways that hurt patients.
Look no further than Michigan, where lawmakers have introduced legislation to create a “prescription drug affordability board.” The board would have the power to set an “upper payment limit” on the prices that can be paid for certain prescription drugs — i.e., price controls. It’s similar to President Biden’s policy, though in other respects, the Michigan measure is even worse.
For instance: No board member could be from a drug manufacturer. That means the board will have little-to-no real-world experience with the production and sale of prescription drugs. It also makes it likely the board will make decisions that stifle medical research and ultimately hurt patient health.
Because while the bill bans members from having a “financial interest” in their decisions, it requires the board to have members from physician groups, hospitals and managed care organizations. These industries absolutely have a financial interest: Namely, in cutting the costs they pay to drug manufacturers.
This is a recipe for less innovation that could save lives.
The Michigan bill’s authors suffer under the illusion that drug manufacturers determine the out-of-pocket costs that patients pay for their prescriptions. But the prices consumers pay are determined by insurers, including government programs such as Medicare. And in any case, the data on drug prices is clear: real drug prices have been dropping for five straight years, no price controls needed.
Where, then, is this bill coming from? The answer is economic illiteracy. Politicians believe they are better at pricing goods and services, despite evidence to the contrary.
The same goes for energy. Let’s have the board look at the price increases for natural gas, propane, gasoline, diesel, and heating oil — all of which have seen price hikes in recent years. Why not institute price controls at the pump, too?
We all want lower prices, but, as the economist Thomas Sowell has said, “There are no solutions; only trade-offs.”
Whatever the industry or item, the trade-off for price caps is clear: When politicians or government boards start setting prices, consumers inevitably experience shortages. Cap the prices on steak, and meat producers will send very few steaks to your state. Cap prices on gasoline and distributors will avoid gas stations.
With less revenue, drug makers will bring fewer new, often life-saving drugs to the market.
President Biden’s price controls are already holding back the next wave of medical progress. If states like Michigan double down, even fewer life-saving drugs will come to market, leading to even more suffering for patients.
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