Bad ideas have a way of sticking around , but fortunately there’s a home for them called Congress. The recently proposed legislation on drug prices is firmly in this category, relying on what are in effect government-imposed price controls, backed by the threat of ruinous taxes for any companies that don’t comply. The Wall Street Journal eviscerates the plan, proposed by Speaker Nancy Pelosi last week, in an op-ed by the editorial board.
Pelosi’s proposed legislation would require Health and Human Services to “negotiate” prices for 250 of the most expensive patent-protected drugs, based on international comparisons, which almost always reflect price controls already imposed by other countries.
This backdoor to price controls is backed up by the threat of a 65% tax on annual gross sales for any company that doesn’t agree to the lower prices — and yes, that’s gross sales, not income or profit — which would then go up 10% per year. In other words, in a few years a transgressing company would be paying all of its sales in the new tax.
In addition to naked government bullying, the law will endanger access to cutting-edge treatments. In the U.S., which has so far avoided destructive price controls, 89% of new treatments introduced from 2011-2018 are currently available, compared to 62% in Germany, 60% in the UK, 50% in Japan, and 48% in France — all of which have instituted price controls.
And as always, price controls would endanger innovation to develop new cures and treatments, by making it difficult if not impossible for drugmakers to recoup huge R&D costs, estimated at over $1 billion per each new drug that is approved. Further, only 12% of new drugs that enter clinical testing eventually receive FDA approval, and these have to carry the costs for the 88% that fail.