Pelosi on Drugs: A Bad Trip?

The Manhattan Institute has gathered dozens of economists and policy analysts to make a signed public statement against the Democratic Party's plans for government negotiating prices for Medicare Part D payments. From their statement:

Under current law, negotiations over prices are conducted between the pharmaceutical producers and private firms administering drug benefit programs for Medicare beneficiaries. With federal spending on pharmaceuticals is projected to grow to about $100 billion in 2007 — over 40 percent of the U.S. total —some policymakers now advocate federal negotiation of prices with the pharmaceutical producers, in order to use the large size and bargaining power of the federal government to achieve sharply lower prices.

Federal price negotiations would represent a policy change carrying significant risks for research and development investment in new and improved medicines. A substantial body of research shows that similar federal drug programs impose prices substantially lower than those negotiated in the private sector, and that such lower prices inevitably will reduce research and investment in new and improved medicines. This slowdown in pharmaceutical innovation will yield highly adverse effects upon future patients in terms of reduced life expectancies.

Manhattan's Ben Zycher has issued a full study on these matters, concluding that:

investment in new drug research and development would decline by approximately $10 billion per year. It estimates as well the effect of reduced pharmaceutical R & D investment on American life expectancies, or expected "life-years". Specifically, this work projects that federal price negotiations would yield a loss of 5 million expected life-years annually, an adverse effect that can be valued conservatively at about $500 billion per year, an amount far in excess of total annual U.S. spending on pharmaceuticals.

The Democrats' projected move toward government price negotations is a perfect example of Mises's notion that a viable and stable "third way" between capitalism and socialism is very hard to find: government interventions (such as Medicare) begat more government interventions (such as government trying to negotiate drug prices). A similar dynamic drives government efforts to manipulate or manage our private choices about eating, drinking, smoking, etc. if they can be said to lead to increased public expenditures on health care down the line. Health, as my friend Sheldon Richman once told me, has indeed become the health of the state.