The Corner

Health Care

The Tradeoffs of Rigging Medicare Drug Prices That Biden Ignored

President Joe Biden addresses a joint session of Congress at the U.S. Capitol in Washington, D.C., April 28, 2021. (Doug Mills/Pool via Reuters)

Last night I pointed out that President Biden was being dishonest when he said, “Let’s give Medicare the power to save hundreds of billions of dollars by negotiating lower drug prescription prices. ”

As I pointed out, the Congressional Budget Office has repeatedly said that giving the Secretary of Health and Human Services the power to negotiate with drug companies would only have a “negligible effect on federal spending.”

I should amplify my post by saying that there is one bill that has been introduced that the CBO said could save hundreds of billions of dollars on drugs. The only thing is, it would require much more significant intervention than Biden let on in his speech.

While Biden spoke merely of giving Medicare the power to negotiate, a bill introduced by Representative Frank Pallone would go much further, by requiring drug makers to enter negotiations with the government over certain drugs or else pay an excise tax on sales of the drugs. The negotiations would result in a “maximum fair price” — essentially, a government price ceiling. The price ceiling for prescription drugs would never be allowed to exceed 120 percent of the average price paid by a group of countries (Australia, Canada, France, Germany, Japan, and the United Kingdom).

Providing the Secretary of HHS this kind of leverage, CBO concluded in 2019, could generate $345 billion in savings over a decade.

However, there are tradeoffs. CBO predicted that, “in the short term, lower prices would increase use of drugs and improve people’s health.” But that, “in the longer term, CBO estimates that the reduction in manufacturers’ revenues from title I would result in lower spending on research and development and thus reduce the introduction of new drugs.”

Now, liberals might still argue that these tradeoffs are worth it. That drug companies should be coerced to the bargaining table and that lower drug spending and more access to drugs would improve health enough that a reduction in innovation is worth it. But that would require an honest conversation about the level of government intervention required and the tradeoffs, one that Biden did not provide by acting as if simply allowing HHS to negotiate drug prices would lead to a magic windfall of savings.

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