In a deal rich with irony, Republican leaders of the House of Representatives have acceded to the demands of one of their own party members and will permit a vote soon on applying foreign price controls to prescription drugs used by U.S. citizens. This agreement, wrought during a desperate search for votes, secured passage of the Medicare prescription drug legislation in the House at the end of June. In late night negotiations while the final vote on the bill was held open (well past the normal time period), Rep. Jo Ann Emerson (R-MO) agreed to switch her vote from nay to yea on the drug bill, giving it a one-vote winning margin, in return for a vote on the price control measure.
The price control legislation (H.R. 2427) sponsored by Rep. Gil Gutknecht (R-MN) would allow U.S. wholesalers and others to import drugs at prices that are set by foreign governments. Specifically, it would remove the administration's discretion to deny imports from about two dozen countries regardless of concerns about the safety and purity of the imports. If approved, this legislation will become part of the House version of the Medicare drug bill.
To be sure, the high price of drugs paid by seniors demands a policy response. But instead of pursuing price controls, which would undermine a competitive approach for delivering a Medicare drug benefit, progressives in both parties should use public policy to strengthen the ability of private markets to restrain prices.
Republicans have rightly opposed U.S. price controls for Medicare prescription drugs, but they are wrong to consider importing foreign price controls. The Gutknecht legislation, which has 36 Republican co-sponsors and 14 Democratic co-sponsors, runs contrary to a view held by a wide variety of members of Congress -- including Democrats ranging from Sens. Edward Kennedy (MA) to John Breaux (LA) -- that price controls should be kept out of the Medicare debate. That's still the right policy especially as the House and Senate seek to reconcile different versions of Medicare drug benefit legislation that already contain many flaws.
Importing foreign price controls would deliver a severe blow to a robust pharmaceutical industry, which the U.S. dominates. Price controls would limit the financing and suppress incentives for pharmaceutical and biotech companies to be innovative. The basic problem is that public officials are likely to set prices wrong.
Public officials in countries with price controls regularly set prices low due to political and budgetary pressures. Drug companies can still make a small profit in such countries because the cost of producing additional drugs is relatively low. They cannot, however, recoup the high cost of research and development if every country imposes strict price controls. America needs to let markets set prices in order to sustain the innovations that promise better drugs.
Just because other countries are not paying their fair share of research and development costs, however, doesn't mean we should shoot ourselves in the foot and give up the benefits of innovation. Drugs improve lives and prevent deaths just like other kinds of health care, and are becoming increasingly important in our aging society.
Price controls on drugs would put to waste many of the billions of dollars that we spend on health care research for cures to dreaded diseases. The path to a cure depends in part on U.S. drug and biotech companies commercializing scientific advances. U.S. companies dominate the industry partly because the research investment produces a big talent pool of scientists in the United States. Price controls would grind down the industry as a whole and U.S. leadership would become a moot point.
Fortunately, there is a better way. The basic idea behind a prescription drug benefit for Medicare is to give all beneficiaries the opportunity to combine their purchasing power into large groups by providing them coverage and discount cards. Today, seniors without coverage pay retail prices that are substantially more than the prices paid by those with coverage. The Senate version of the Medicare drug benefit bill would also restrain prices by ending the legal wrangling that has prevented less expensive generic drugs from coming to the market quickly as patents expire.
And more could be done to intensify competition between similar drugs. Specifically, the government should encourage more comparisons between similar drugs based on what's best for each individual. Scientists have shown that genetic and other personal characteristics change how individuals react to medicines, but neither the drug companies nor the scientific community study these differences often enough and well enough. When they do, the results often take years to filter into the daily practice of medicine. The federal government should promote more research to ensure that doctors and patients can make choices based on reliable and useful information about what is best for each person.
Congress also needs to protect people who are vulnerable because of the high cost of drugs. A Medicare drug benefit would go a long way, especially one that targets beneficiaries with low-incomes and high drug costs like Rep. Cal Dooley's (D-CA) bill (H.R. 1568). But millions of uninsured working Americans are vulnerable too because they currently pay high retail prices. At a minimum, the drug discount cards that many states offer to seniors, or the federal discount card that Congress will likely enact as part of a Medicare drug benefit, should be expanded to include uninsured Americans. But ultimately, ensuring that all uninsured have adequate coverage is the only fair solution.
Making the domestic market for medicines fair and efficient would not by itself address the issue of other countries free riding on U.S. investment in research and development. Such an effort is beyond the scope of the current Medicare debate, but clearly the Gutknecht bill would move in the opposite direction. It would throw in the towel and let other countries determine the fate of innovative drugs and biological products as well as the future of the U.S. pharmaceutical and biotechnology industries.
Instead of compounding the problem of creating a sensible Medicare drug benefit, the House should set aside the Gutknecht bill and get on with fixing the many existing problems with the House and Senate bills to modernize Medicare.
