President Joe Biden announced a plan Tuesday to keep Medicare solvent by relying on even more aggressive price negotiations with the pharmaceutical industry than Congress has already agreed to.
The president claims it’ll result in $200 billion in savings.
The president is living in fantasyland.
In just a decade, $200 billion? That’s quite a claim considering the nonpartisan Congressional Budget Office has said such negotiations “would have a negligible effect on federal spending.” Talk about playing poker with money you don’t have.
The reality is these negotiations’ main consequence will be the US healthcare system falling further down the slippery slope of federally mandated price controls, restricting patient choice and destroying the research-and-development system that makes America the world leader in medical innovation.
Uncle Joe Fantasyland Part Two is that the Federales “negotiate.” In fact, Uncle Sam will set the price, and the only “negotiation” is “Take it or leave it.”
As the CBO notes, “no further savings are possible unless the government restricts beneficiary access to medicines.”
Without putting too fine a point on it, price controls equal choice controls. Biden’s fantasy Medicare scheme will create a death spiral, literally and financially.
Under his plan, the price of newer, more expensive medicines will be cut by up to 75%.
If companies don’t “negotiate,” they pay a penalty of 95% of their total revenue for that year.
Organized crime never had such clout. Talk about an offer you can’t refuse.
This isn’t a wild prognostication. The US Department of Veterans Affairs plan illustrates the point. The VA offers 1,300 drugs compared with 4,300 available under the free-market-designed Medicare Part D.
The unsurprising result is that more than one-third of retired veterans choose to enroll in Medicare drug plans.
A Columbia University study found the VA covered just 19% of all new drugs approved since 2000 — and only 38% of drugs approved since 1990.
VA negotiating tactics are driving out some drug providers from the program, leaving patients with fewer treatment options.
Fewer options result in poorer treatment outcomes, which result in . . . sicker, more expensive patients.
And the costs of caring for people who are sicker instead of healthier will cause Medicare spending to surge. Oh no, Uncle Joe. Say it ain’t so.
Numerous high-impact, highly regarded studies have shown that every $1 spent on new medicines saves Medicare $5.
In a very real way, the administration is trying to reduce spending that could be avoided by making existing drugs more readily available.
Price controls mean higher risk and lower rewards for investors.
Biden already secured a tough “negotiation” scheme in the Inflation Reduction Act.
University of Chicago economist Tomas Philipson analyzed that and found the reduction in R&D investment that’ll result will cause a loss of 331.5 million life years in the United States because of the new drug programs that will be scrapped or never begun.
That’s 31 times larger than the 10.7 million life years lost from COVID-19 in America to date.
And again, the costs for caring for people who are sicker instead of healthier will cause Medicare spending to surge.
Biden’s new plan would significantly accelerate these losses.
Uncle Joe has chosen to ignore reality in health-care policy because it doesn’t suit the shibboleths of his political agenda.
The predictable outcome of his price-control feeding frenzy is the significant disincentivization of the R&D system that allows Americans the benefits of being the world’s top medical innovator.
At the heart of the debate is whether we are going to improve our healthcare system using smart and evolving free-market principles or go down the sound-bite-laden path of government negotiation (today) and rationing care (tomorrow).
In the words of the great American novelist Philip K. Dick, “Reality is that which, when you stop believing in it, doesn’t go away.”
Peter J. Pitts, a former Food and Drug Administration associate commissioner, is president of the Center for Medicine in the Public Interest and a visiting professor at the University of Paris School of Medicine. Dr. Robert Goldberg is CMPI’s vice president of research programs.
