The Problem With Price Caps

  • Source: CASE
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This week, we submitted comments to Health and Human Services (HHS) Secretary Alex Azar, urging him to reevaluate and abandon a proposed change to the Medicare Part B program which would impose price controls for certain medications based upon the average price at which the drug is sold in 16 countries.

We should be clear: all Americans want lower healthcare costs and we applaud the Trump Administration for its willingness to examine any and all proposals. In fact, the administration’s work to increase competition and transparency throughout our healthcare system slowed the growth in healthcare spending to the lowest levels since 2013. More impressively, the increase in retail spending on prescription drugs shrank to under one percent, lower than any other category of spending.

These wins are due to the emphasis that the administration has placed on reducing government regulations to promote competition in both the drug market, by increasing approvals in the FDA, and insurance market, by removing onerous Obamacare restrictions.

These are free-market solutions that are proven to work.

Unfortunately, the administration’s Part B proposal is the opposite.

Using a specific provision in Obamacare, the Centers for Medicare and Medicaid Services (CMS) would cap prices for Part B drugs using the average price, an international price index, of specific drugs from 16 countries. Importantly, these countries use government-run healthcare systems. In these systems, governments have only two options to control costs: either restrict or deny care. In other words, if a government cannot, or will not, pay for a drug, patients won’t get them. It’s why 95 percent of the cancer drugs launched from 2011 to 2018 are available in the United States, while only 74 percent, 49 percent and 8 percent are available in the United Kingdom, Japan and Greece, respectively.

The United Kingdom, Japan and Greece are all reference countries in this proposal.

These restrictions aren’t only limited to cancer treatments either. In the U.K., the National Health Service has already announced that they are concerned about available beds for patients, calling it “one of the bleakest winters yet,” as their hospitals are almost already entirely full.

This is the reality of socialized medicine, as it undercuts any market forces and leaves the government with no options but to ration or deny care. In the U.S., this would mean that Medicare Part B beneficiaries who are sickest would not have access to the latest and most effective treatments.

Worse, this proposal would have negative, long-term effects on the global development of new medicines. In a government-controlled market, prices are negotiated with no correlation to market reality, meaning that companies won’t be able to the recoup for their investment or are unable to plan for the future, meaning they will have less to invest in research and development.

This is why over 150 economists signed a letter to Sec. Azar asking him to reconsider this plan, because it will ruin the healthcare market and jeopardize future innovation.

A plan that will immediately curtail the treatments available to Americans and jeopardize the development of future cures is one that has no place in American healthcare.

We continue to urge Sec. Azar to return to the policies that are working and bring real market forces to bear so that patients can feel the results.
Source: CASE