Last week I wrote about a plan in the works in Congress that purports to take on rising pharmaceutical drug prices. Now House Speaker Nancy Pelosi’s drug plan has leaked — and it’s even worse.
The draft leaked this week constitutes an aggressive intrusion by the government into the private health care market. As written, it would penalize innovation and impose price controls — meaning, socialism — deeper into our health care system.
How? Pelosi’s scheme depends on the Centers for Medicare and Medicaid Services (CMS) directly negotiating with pharma manufacturers over prices. CMS could effectively set and control prices. If CMS sets a price a company cannot afford, the company must either accept a loss or the government will issue a massive tax equal to 75 percent of the gross sales of the drug in question from the previous year. Either way, innovation will suffer. Worse, Pelosi’s plan forces manufacturers to offer this price to commercial plans, extending the tentacles of government control into the private market. This interferes with the free market. It kills innovation; pharma companies plow as much as 20% of their annual profits into research and development. No profits equals no R&D, which means no improvements of existing drugs and no new drugs.
Pelosi’s plan also creates an inflationary cap in Medicare Parts B and D, which would result in immediate penalties (read, taxes) on drugs whose prices rose above the rate of inflation since 2016. But inflation is an arbitrary measure, divorced from a drug’s actual manufacturing costs, the investment in the cure, the market demand for a drug as well as its utilization rate. Pelosi’s plan is a first step toward Washington bureaucrats taking total control of the private American pharmaceuticals market.
We’ve seen this movie before. A Republican president, Richard Nixon, imposed price and wage controls on Aug. 15, 1971. Result: Nixon enjoyed short-term success, but over the long haul, the dollar’s value dropped by a third and the nation learned a new word: “stagflation.” The economy went stagnant on wages and economic growth, while also suffering price inflation. Stagflation. The modern economy requires free markets to function, not central Soviet-style command and control. Stagflation went away in the 1980s when President Reagan deregulated and let the marketplace decide.
Pelosi’s plan will have predictable results. We need look no further than Venezuela. Earlier this year, media reported Venezuelans are now suffering shortages of medicines they need to fight pain, treat illness and survive. How did things get so dire in what was once the third richest country in the West? Hugo Chavez ran for the country’s presidency promising to end “income inequality” by nationalizing education and several industries including energy and health care. He won, and by the early 2000s made good on his promises. Venezuela’s economy failed. Its health care system, used for politics instead of healing, has collapsed along with it.
The U.S. economy is far more robust and still more free than Venezuela’s. But Pelosi’s plan injects socialism directly into health care, which is about 18 percent of the total American economy. Its effects will ripple across the whole economy over time.
If our health care system falls under Pelosi’s command plan, American patients will suffer. Cures will be lost as invention and innovation are crushed by the government’s heavy hand. Jobs will be lost as pharmaceutical companies fail and face bankruptcy. Meanwhile, China, which has been pumping billions of yuan into its own pharma research, may stand to benefit by usurping the U.S. drug market.