No room for ‘negotiation’
December 7, 2006| By Nathaniel Ward
Many liberals campaigned this year on a pledge to allow the government to “negotiate” the prices of medicines seniors purchase under the costly new Medicare prescription drug entitlement. This may be good rhetoric, but it’s terrible policy, as Heritage health care expert Bob Moffit explains.
“There’s a lot wrong with the Medicare drug program,” Moffit argues. “But the intense competition that takes place among health plans offering drug coverage today isn’t one of them.” The private insurers who currently purchase drugs have already negotiated steep discounts from drug companies and kept premiums down, he notes, “and the nonpartisan Congressional Budget Office doesn't think the Medicare bureaucracy would do better.”
Government “negotiation” would mean that government would fix drug prices. The likely method of enforcing the fixed price would be crude: Congress would simply block entry to any company that wouldn't or couldn't accept the government's fixed price, and companies wouldn't be able to sell to seniors in Medicare. That’s bad news for seniors depending on newer and more effective drugs sold by companies locked out of the Medicare “market.”
It turns out that drug companies charge what they do for a very good reason: research and development of new drugs is a costly and risky business. If these costs cannot be covered, the research will not be undertaken and the lifesaving new drugs will not be developed. Moffit cites a study finding that European price controls limited drug research there and helped block development of new medicines. Price controls here “would likewise result in much greater losses of R&D investment and new medicines.”
Nathaniel Ward is the Editor of MyHeritage.org—a website for members and supporters of The Heritage Foundation.
