Mary Tipton: Medicare drug price ‘negotiations’ should be a nonstarter

(Wayne Partlow | AP photo) In this Feb. 13, 2020, photo, The Official U.S. Government Medicare Handbook for 2020 over pages of a Department of Health and Human Services, Office of the Inspector General report, are shown in Washington.

Recent efforts to pass the $3.5 trillion budget reconciliation bill predictably imploded. Some Democratic lawmakers are rightly concerned about the big price tag fueling inflation that has already hit a 30-year high. It’s a worry shared by Utah Sens. Mitt Romney and Mike Lee. But rising food prices isn’t the only roadblock to the so-called “Build Back Better” agenda.

The bill compromises the future of American health care under the guise of lowering drug prices. The rising cost of pharmaceuticals is a problem that warrants action. But the proposed strategy will have major unintended consequences.

Included in the initial budget package was a set of de facto price controls for prescription drugs. Supporters argue the policy simply empowers the government via Medicare to “negotiate” drug prices with pharmaceutical companies. And the price tag can’t end up surpassing a proportion of what countries pay overseas.

The first problem is that many foreign countries have already fallen for the trick of government-run health care, which means pharmaceutical costs abroad are artificially low. Therefore, the price ceiling applied in the U.S. would fall below the market cost. The second complication to their idea is private industry and the U.S. government don’t operate on a level playing field. Uncle Sam holds most of the cards.

Rather than a relationship similar to consumers haggling over the price of tomatoes at a farmers market, it would be more akin to a shopkeeper “negotiating” with a mobster. And what if pharmaceutical companies refuse to offer drugs at the government-picked price point? Manufacturers could be hit with a steep excise tax.

When the curtain is pulled-back on the reality of Medicare “price negotiations,” a majority of Americans oppose it — regardless of political preference. It’s not surprising considering patients will inevitably suffer as a result.

As the cost of some medicine is artificially driven down, incentives to innovate would dwindle. That means fewer lifesaving treatments, therapies and vaccines brought to market as research and development budgets stretch thin. More specifically, the non-partisan Congressional Budget Office recently estimated roughly 60 fewer drugs would become available over the next 30 years.

And that doesn’t include the unintended financial consequences. Who do you think will end-up paying for the heightened excise taxes applied to pharmaceutical companies that disobey the government’s pricing edict? That’s right, you. Similar to corporate tax increases, a company’s financial liabilities roll downhill.

However, not all of the health care ideas wrapped up in the reconciliation package should be thrown out. The bill includes a provision that shines a spotlight on Pharmacy Benefit Managers (PBM) which act as the health care industry’s intermediaries. PBMs have historically siphoned billions of dollars per year from the drug supply chain. It’s money that could be passed along to patients as financial savings at the point of sale. Injecting transparency into PBM activities is a good first step towards meaningful reform that will tame rising drug costs.

As moderate and progressive elements of the Democratic caucus in Congress continue to go head-to-head over the budget reconciliation package, price controls on prescription drugs should be a nonstarter. Instead, lawmakers should shift their sights to the intermediaries of the drug supply chain that jack-up costs for patients.

Slowing the pipeline of health care innovation and reducing access to new prescription drugs is the last thing Americans need as we emerge from the pandemic.

Mary Tipton

Mary Tipton, M.D., is an internal medicine and pediatric specialist in South Jordan and a member of the Job Creators Network.