To Lower Drug Prices, End Foreign Freeloading
The Federal Government, for decades, has let Big Pharma and Foreign Powers reap massive profits off the backs of hardworking Americans. This needs to end. It is quite simple to do.
President Biden’s price controls on pharmaceutical drugs are destructive to American prosperity and innovation. It is the definition of insanity: doing the same thing over and over and expecting different results.
Democrats and Biden, who passed the IRA and lived through the 70’s, apparently did not learn anything about Nixon’s plethora of price control failures. Punishing American companies and Americans is the opposite of how to solve the problem of high drug prices.
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President Biden today tweeted (xeeted?):
The IRA enables Medicare to ‘negotiate’ drug prices with pharmaceutical companies and cap the ceiling between 25-65% of the cost. If these companies do not ‘negotiate’ with Medicare, the government will extort them with a 186% excise tax of the drug’s daily revenue—not profit—and it climbs to 1,900% the longer they reject Uncle Sam’s proposals.
Talk about leverage: accept my demand or go bankrupt.
Price controls never work as intended. They always have the opposite effect. That is because the government cannot legislate the changing of the human condition. If God wanted us to respond to incentives and constraints differently than how we already do, I am sure He would have done that.
There are two different types of price controls, a ceiling and a floor. The former does not allow a price to go above a certain threshold, such as the IRA’s Medicare ‘negotiations.’ The other does not allow prices to fall below a certain threshold, such as federal minimum wage laws. Ceilings cause shortages, floors cause surpluses.
High drug prices in the United States are an effect, not a cause of the system. That is, Biden’s Administration, is putting a Band-Aid on a wound that needs stitches. Eventually, the gangrene will set in, and Americans will be in a worse-off position.
Ironically, solving the problem does not land on our soil. Let me explain.
Back in 2020, I was commissioned by GOP Congressional Campaigns to devise a legislative platform to present to the American people. A 21st Century Contract with America. One piece I came up with is the American Consumer Affordability & Reciprocal Equality Act (American CARE Act).
Unlike the Democrat’s ‘Inflation Reduction’ Act, mine actually accomplishes what it says it will. The American CARE Act does not wholly fix the damage caused by ObamaCare, it specifically addresses high drug prices. One thing at a time.
The objectives of the American CARE Act are simple:
(1) Lowering prescription drug prices in America by facilitating a global free market for pharmaceutical medications;
(2) Lowering out-of-pocket expenses for consumer prescription medications, resulting in an increase in real purchasing power per capita;
(3) Lowering the cost of health insurance premiums by lessening the risk involved regarding the return on investment per insurance policy by lowering the costs for insurer contributions.
Before we go over the ‘how’, knowing the ‘why’, is important.
Current State of the Pharmaceutical ‘Market’
The United States spends more on medical care than any other nation, $4.5 trillion in 2022. This represents 17.7% of GDP. In 1960, it was 5% of GDP, or $27.2 billion. This results in around $15,000 per household, compared to $146 in 1960. Medical expenses have grown as a share of household expenses, 16.6% year over year. Whereas wages have only grown 6.2% year over year.
If our medical care market was a separate country, it would be the fifth-largest economy.
The global pharmaceutical market is not an equal playing field, nor close to a free market. The U.S. market makes up 46% of medical revenue in the Organization for Economic Development (OECD), funds 44% of the R&D, and invests 75% of global medical venture capital. We lead the world in intellectual property for novel drugs.
The American pharmaceutical market makes up seventy percent of global patented drug profits, i.e. not generics. This happens even though the U.S. only represents 34% of OECD GDP and 25% of the population.
There are 35 other countries in the OECD. The other countries have a combined economy of $85 trillion, in 2020 dollars, or almost four times the U.S. economy.
In other countries, such as Canada and the U.K., for the same prescription, they pay 75% less. Pharmaceutical companies rely on Americans for profit.
The reason the United States subsidizes the rest of the world is because the vast majority of other nations have an inefficient single-payer or socialized medical system. These nations ‘negotiate’ with our pharmaceutical companies to lower the prices of their drugs.
The negotiations go like this: if you do not sell your drugs at the price we are demanding, we will not protect your intellectual property and will have our companies that make generics infringe on your property rights.
After a company spends $10 billion and 10 years developing a drug, that threat is not taken lightly. Thus, these companies recoup their profits off the backs of Americans by charging, on average, 300% higher prices.
The American CARE Act
The American CARE Act creates a special subcommittee to conduct a thorough review and analysis of what nations are the worst offenders, for what drugs, and the price differential between the American market and other countries.
With this information, the Act directs the President to engage in creating specialized trade agreements with these countries. For countries that do not want to engage in trade agreements, embargos will be imposed on them for these drugs.
For countries that are found to violate the agreements, sanctions will be imposed. These sanctions will start from less severe and get more severe as the breaches continue. Moreover, companies will be able to sue foreign governments who violate their property rights in U.S. federal court.
Lastly, if a presidential administration refuses to enforce the Act, it enables the Senate to step in.
One great part of the American CARE Act is it is entirely constitutional, something many in Congress forget to look at when passing legislation.
Congress has the sole power to “regulate Commerce with foreign nations…” Art. I. § 8. And sole authority to “promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Id.
In short, the American CARE Act does the opposite of what Biden and Democrat’s are doing with the IRA. It goes after the offenders, not the offended.
It puts America First.
Mackenzie A. Bettle is an attorney and economist in Phoenix, AZ.