Price controls won’t reduce health care costs, but they will

Even as Democrats try to revive their stalled reconciliation law to impose price controls on prescription drugs, another group in the health care sector offered a better solution. Their proposal, which would use competition to drive down prices, has the potential to benefit consumers – with fewer side effects than brute force from the government.

A consortium of hospitals recently announced plans build a factory capable of manufacturing insulin in two years. Once their factory is up and running, the nonprofit consortium said it will sell the insulin for $30 a vial, a fraction of what drug companies currently charge.

Because it was invented a century ago, most forms of insulin are not protected by patents. In other words, anyone can produce the drug, without having to rely on proprietary trade secrets. But until now, the cost of manufacturing the drug – which is more complicated to manufacture than most pill-based pharmaceuticals – had discouraged most companies from entering the market.

Biden proposes price fixing

The Biden administration has its “solution” to the problem of high drug prices: government-imposed price controls. His proposal, incorporated as part of the $5 trillion spending spree envisioned by Congress, would allow the federal government to “negotiate” (i.e. dictate) the prices of certain drugs. Companies that refuse to “negotiate” would be penalized with a 95% tax – a penalty so heavy that some companies could completely stop selling their drugs in the United States.

But when governments set prices, they do so through arbitrary benchmarks, which often distort the market in harmful and cruel ways. As the mother of a disabled daughter, I know that many European countries use the Quality Adjusted Life Year (QALY) mechanism to cap what their socialized medicine systems will pay for certain drugs. By rating an extra year of life for a “normal” person as greater than that of a disabled person, the QALY metric indicates that people like my daughter are of less value to society – an awful message for a government to send.

Price controls would also create other adverse effects on innovation. The Congressional Budget Office concluded that a version of the Democratic price control legislation would result in about 60 fewer drugs in the first three decades after it was enacted. Other estimates suggested as many as 100 fewer drugs in the first decade alone. Either way, these price controls would mean untreated illnesses and potentially unsaved lives.

Competition is better

The hospital consortium outlines a better approach, one that relies on competition to bring prices down. Now that the consortium has announced its imminent entry into the market, other pharmaceutical companies may soon reduce their prices for insulin products. If they don’t, these manufacturers will almost certainly lose market share when the consortium starts selling their insulin products at a lower price.

Just as competition has lowered the prices of goods ranging from clothing to electronics over the years, competition can also help reduce prescription drug costs for struggling families. A combination of new initiatives like the Hospital Consortium, and greater regulatory flexibility from the Food and Drug Administration regarding generic drug approvals, would have a powerful impact on the prices families pay every day at the pharmacy counter — without the effects negative effects of price controls approaching.

Mary Vought resides in Virginia with her husband and two children. You can follow her on @MaryVought.

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