No pharmaceutical pricing crisis to cure

When allowed to work, the market is a powerful tool. It brings lower prices and innovation. But that will be disrupted should Washington "negotiate" price controls for Medicare patients, says Investor's Business Daily (IBD).

According to IBD, price controls would negatively affect profits. In pharmaceuticals, where about $1 billion is needed to bring a drug to market, development means the continued production of new life-saving and life-enhancing drugs. As a result, costs paid by non-Medicare patients will rise; if drug companies are forced to sell large quantities of their products at low cost to the government, they have to make up the difference elsewhere. Controls will also lead to limited choice in available medicine – when profits dry up, so does the pipeline of new medication.

The main problem is the line often made from the high cost of medical care to the need for drug-price negotiations. But that line of thinking is obstructed, says IBD:

Increases in health care spending in the U.S. are trending downward; in 2005, according to a recent report, the increase, at 6.9 per cent, was the slowest in six years.

In 2004 the increase was 7.2 per cent; the year before, it was 8.1 per cent.

Health insurers have been largely responsible for the decrease through the use of free-market price signals. While providing an incentive for customers to buy generic and other low-cost drugs by charging a minimal co-payment, they build in a disincentive to buy the costlier drugs by charging much larger co-payments.

Source: Editorial, No Crisis to Cure, Investor's Business Daily, January 12, 2007.

For text: http://www.investors.com/editorial/editorialcontent.asp?secid=1501&status=article&id=253498326293517

For more on Health Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=16

FMF Policy Bulletin/ 23 January 2007