U.S. Senator Chuck Grassley, R-Iowa, the chair of the Senate Finance Committee, recently released legislation, called the Prescription Drug Pricing Reduction Act, to cap what drug manufacturers can charge in the United States. While Iowa’s senior Senator has done more to protect America’s seniors than just about anyone else in Congress, this well-intentioned bill will only further complicate the very problem he is trying to resolve.
Grassley’s price control bill is similar to an idea proposed by some of his colleagues in the House of Representatives. Their proposal, called binding arbitration, would allow the government to authorize price-setting through an arbiter.
The Grassley and House plans may seem like reasonable measures to take in lowering drug prices for consumers. After all, according to the nonpartisan Legislative Services Agency, the cost of Medicaid for each Iowan has risen an average of over 4 percent per year since 2017 – 2.5 percent more annually than in the six years prior. The trouble is Congress is attempting to solve a problem created by the government with more government. Doing so has never worked before, and this time will not turn out any differently.
Drug prices are already artificially high in the United States in part because of price controls. For years, other countries have price-fixed the cost of medicine within their borders, causing the U.S. to implicitly subsidize the costs. Congress and the White House should put as much pressure on these countries to pay their fair share as they are with NATO countries that rely on the U.S.’s checkbook. However, rather than penalize the anti-competitive countries that are responsible for the U.S.’s healthcare problems, the proposals from Sen. Grassley and the House would transfer the burden onto healthcare innovators themselves. American consumers will be hurt the most.
Bringing new drugs to market is expensive, costing as much as $2.6 billion per product with a mere 12 percent approval rate. If the U.S. joins the rest of the world’s price-fixing party, costs in the U.S. will not stop rising over the long term. Instead, they will appreciate for a reason far more damaging than foreign anti-competitiveness – the freezing of medical innovation, both domestically and abroad.
The logic seemingly behind the introduction of the Grassley and binding arbitration proposals is reminiscent of the blame by many Iowa residents on the private sector for the state’s rising Medicaid rates. It is quite easy to throw accusations of greed when things go wrong. Nevertheless, just as Iowa’s government-issued raises to rectify past government mistakes are to blame for the state’s Medicaid cost hikes, so too are government forces – not the private sector itself – at fault for the rest of the drug industry’s problems.
In the past, Sen. Grassley has demonstrated an understanding of this concept and has even called out past price-fixing efforts—even when they have come from within his own party. For example, in June, Sen. Grassley actively opposed President Trump’s proposal for an International Pricing Index, which would effectively create a pricing monopoly on drugs between nations. There is nothing different here.
With one of the highest Medicare beneficiary rates in the nation, Iowa stands to lose from the Grassley and House proposals more than most states. The last thing the Hawkeye State needs is even higher drug prices. Congress needs to go back to the drawing board and tackle the real drivers of the country’s high healthcare costs before it is too late.