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Free Minds & Free Markets

Another Republican Capitulation on Health Care

The White House plans to import foreign prescription-drug socialism to the United States.

Republicans have established a clear pattern on health care. First, they rail against whatever big-government scheme Democrats propose. Then, after a half-hearted and incompetent effort to convince the public of the benefits of a market-oriented system, they abandon their principles and adopt the big-government idea as their own in order to win or hold power.

The spectacle of Republican candidates tripping over themselves to announce their commitment to preserving requirements for coverage of pre-existing conditions, a key component of the Affordable Care Act (Obamacare) and the mandate most responsible for making insurance unaffordable for average Americans, is one example.

The latest addition is the recent announcement of the Trump administration that it would base Medicare Part B reimbursements on what other countries pay for those drugs.

For years, most Republicans opposed what was referred to as drug reimportation, or the purchasing of American-made drugs sold in foreign markets at lower prices. Their reasoning was both simple and correct. Buying drugs that are cheaper only because foreign governments have enacted price controls would bring all the same downsides as directly setting our own controls, namely scarcity (shortages and waiting lists) and reduced incentives to research and develop new drugs.

The U.S. market is large enough that foreign price controls alone are not a major threat to research and development. In other words, non-Americans freeload on American consumers who fund the bulk of new drug development. But nothing can insulate non-Americans from the other problems of price controls, which is why newer lifesaving drugs are less available in countries like France and the United Kingdom. And the United States, alas, has no other market on which to freeload. If we destroy the most innovative drug market in the world, then it simply means there will be less innovation and more preventable deaths.

The White House correctly calls out foreign governments for their nonsensical drug policies, which hurt their consumers even though, thanks to the United States, they aren't paying the full price of those bad policies. Unfortunately, the president's idea of "confronting" them by mimicking their policies here at home leaves much to be desired and will have negative and long-lasting consequences.

Medicare Part B covers drugs purchased and administered by physicians, so cancer drugs, vaccinations, and the like would all be affected. But the program isn't likely to stop there. The rules are being developed by the Center for Medicare & Medicaid Innovation, another Obamacare creation that Republicans have frequently criticized. CMMI was created to facilitate government experimentation with different health care payment models, with the ultimate goal of spreading them across the entire market. Once controls are in place, it's all but inevitable that they will be expanded to cover all drugs under Medicare and then beyond, whenever the next Democratic government is in place, if not before.

None of this is to say that the status quo is desirable. Where drug prices are most egregiously high, there's inevitably some government policy restricting competition. And Medicare is not market-based in its current construction. The answer, however, is not to further manipulate the market and manipulate prices but to remove excessive burdens imposed on the health care sector by misguided regulation and provisions that shield drug manufacturers from competition.

Two days before the White House announced its plan to import foreign prescription-drug socialism to the United States, its Council of Economic Advisers ironically warned that "socialism is making a comeback in American political discourse." How right they are!

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  • Jerryskids||

    Republicans have established a clear pattern on health care Government Almighty.

    Principals over principles, Top Men, "it's different when we do it", and an unbroken string of budget increases demonstrates the GOP has no objection whatsoever to Leviathan as long as he has an (R) after his name.

  • Sarah Palin's Buttplug||

    Hey, the Trump-tards will tell you that Big Government is great when their God-King does it.

  • buybuydandavis||

    That's God Emperor of the United States.

    All hail GEOTUS!

  • Michael Ejercito||

    One important distinction is this.

    When gasoline prices rise, people use gas less often.

    When chemo prices rise, people do not get cancer less often.

  • I am the 0.000000013%||

    The FDA makes drug creation and sales probably the most regulated market on the planet.

    When we have a free market comparable to smart phones for pharmaceuticals, then we can argue about how one thing is necessary and the other is optional.

    Here's a hint as to how that will go.

    When chemo prices rise, people do not get cancer less often.

    Who cares - cancer patients have 150 different treatments for cancer, each vetted by multiple certification agencies and available in quantity for commodity prices from multple outlets including amazon-drugmart.com.

  • Paloma||

    So none of those treatments have to be prescribed by a physician? And how sensitive is that physician to price, since it's not something that he's paying for?

  • NotAnotherSkippy||

    This from the publication that loves the UBI and has, along with Cato, advocated for drug reimportation from those same countries with price controls. So they learned it from you. To be sure, not from you personally, vero, just the clear editorial slant around here.

  • aajax||

    It's not quite fair to essentially accuse Reason of hypocrisy simply because they present a variety of opinion.

  • vek||

    Well, the main effect would be to hurt R&D... But with a lot of poor countries becoming NOT poor, hopefully overall R&D budgets and can stay as high as they are now, or even grow still. This will likely end up being just one more death of a thousand cuts, but this alone won't destroy the world.

  • rexlpm||

    I agree bad regulation restricts competition causing prices to rise and shortages. But, re-importation or targeting patented drugs to average price in other developed countries might have the opposite effect of what you are suggesting. With the U.S.A pegging price to the average price across developed countries, I suspect manufacturers will no longer be willing to negotiate discounts with those countries. The price will rise in developed countries leading to fewer sales in those countries, but the price should remain the same in the United States. I guess if you want to think like a nerdy economist, you would say follow the elasticity of demand. The only way developed countries can negotiate deep discounts relative to the U.S.A is if the U.S.A prevents arbitrage. Why in the world would the united states want to do that? To measure the true cost/benefit of single payer need to make sure that capitalists are footing the bill.

  • I am the 0.000000013%||

    Excellent analysis - thank you!

  • buybuydandavis||

    Yep. Re-importation let's US consumers have the benefit of low prices, and the pharmas will have to get profits from foreigners instead.

  • Paloma||

    How is it reimportation when the drug is actually manufactured in India or China?

  • aajax||

    I'm not sure you can call the price-setting mechanism in foreign countries "negotiation".

  • JFree||

    When the US imports pharmas from overseas where govt has manipulated the prices that's bad economics.

    When the US imports steel/commodities from overseas where govt has manipulated the prices that's good economics.

  • JWatts||

    Bingo!

  • Magnitogorsk||

    Surely prices will rise overseas to compensate for less subsidization by US consumers. Which I believe is the entire point of the policy, to spread out the bill rather than us footing the majority of it. An "America First" policy, if you will.

  • buybuydandavis||

    That's why Reason hates the policy.

    They prefer Foreigners First.

  • buybuydandavis||

    "For years, most Republicans opposed what was referred to as drug reimportation, or the purchasing of American-made drugs sold in foreign markets at lower prices. "

    Reason opposes the right for Americans to purchase their medications from the worldwide lowest cost provider.
    Open Borders for big government voters.
    Closed Borders medicine.
    Because Free Markets.
    ?

    " In other words, non-Americans freeload on American consumers who fund the bulk of new drug development. "

    And Reason wants to keep Americans trapped in the government enabled rent seeking of the medical mafia.
    Because Free Markets.

    It's almost as when Reason says Free Markets, they mean Corporate Profits.

    Pharmaceuticals are the least free market, and Reason wants to preserve that unfreedom.
    You are not free to purchase without paying a pound of flesh to a medical professional for a permission slip to purchase.
    You are not free to purchase from the lowest cost provider. You are trapped in a protected market.
    You are not free to formulate your own medicines, and take them yourself, or sell them to others.
    You are not free.
    And Reason wants to keep it that way.

    An actual libertarian magazine would at minimum come out in favor of your right to self medicate with *all* pharmaceuticals, not just the recreational ones.

    How strange that Reason has never given a hint of this position. It's almost like they're not libertarian at all.

  • Robert||

    Actually you are free to formulate your own medicines & take them yourself as long as they're not controlled substances nor under patent.

  • buybuydandavis||

    "You're free to manufacture your own except for most every drug you might actually want"

  • JFree||

    Sure. A good example is insulin. Been around for close to a century. Three companies do all the current research (a Danish, a French, a US) and their research is all global-based not country-based. The remaining mfrs all produce some off-patent (let's call it generic even though it is often branded) version.

    2010 prices:

    In countries subject to sanctions (eg Iran), the govt itself has to mfr the generic version and it sold for about $1.60

    In countries where generic competition is allowed to exist (eg India, China, Mexico, UK), the generics sold for $2-5 and the Big3 equivalent products for maybe double that. Mexican pharmacies near the US border selling to gringos split the diff with US prices

    In countries where the patent/reg system is designed to protect the Big3 but generic competition is allowed (eg Germany, Canada), generics sold for $20 and Big-3 for $30 or so.

    In countries where the patent system is designed to protect Big-3 and generic competition is killed off (US), the Big-3 prices ranged from $30-80.

    Prices have probably doubled since 2010. Tripled or more in the 'rich free market' (read designed to kill off generics to protect publicly-traded Big-3).

  • jerbigge||

    Why does REASON support the monopolization of medicine through prescription laws, drug laws in general. Along with medical licensing, everything else that raises the cost of care to the consumer. Along with all of the other "government" programs that benefit some at the expense of everyone else?

  • nottom||

    My biggest problem with the price control argument is that currently, US customers are essentially subsidizing R&D for the rest of the world. I'm not sure what the solution to that is, and simply matching those controls probably isn't going to help, but I'm certainly not OK with the status quo.

  • Echospinner||

    The rest of the world.

    Look at big pharm. It is the rest of the world.

  • Paloma||

    R&D has a particularly high cost when there are stringent regulations and endless trials on new drugs from government bureaucracies. FDA adds tremendous costs to R&D which aren't there in other countries.

  • JFree||

    That's just bullshit. Every developed country has a regulatory system. Sometimes the FDA is cheaper/faster - sometimes not.

    What is absolutely the case however is that the US regulatory system is designed to harm generic competition (via excessive hurdles on that approval - and lack of transparency from those granted patents - and an eagerness to keep patents from expiring via bullshit patent approvals) - while also ensuring that the biggest purchaser of patented pharms is legally prevented from using its market power to negotiate prices.

    The consequence is that in the US govt involvement drives medical spending up while in other countries govt involvement drives medical spending down.

  • Doug Heffernan||

    And the United States, alas, has no other market on which to freeload

    If the US adopts socialist rx drug pricing policy, won't that leave a void for some other country to fill with a market based system?

    It seems that freeloading countries get the best prices. So, how does a country become a freeloader and also ensure that there is some market to freeload off of?

    If we destroy the most innovative drug market in the world

    Won't market rules dictate that some other market become the most innovative?

  • Paloma||

    This is what I suspect will happen. The FDA stops or at least slows down a whole lot of innovation.

    Already most medical and dental procedures are much cheaper in other countries.

  • Uncle Jay||

    Comrades, as we all know, healthcare should be the exclusive domain of The State. This way, our obvious betters can thin the herd of the over-populated masses, conserve life-saving drugs and surgeries for them and their toadies, and perhaps most importantly, pass off the expenses to the little people who have too much excess capital. The kind and understanding humanitarian Lenin said that healthcare is the best way to control the people, and he was, as usual, correct. The State needs to control the unenlightened hoi poiloi because the people don't know what is good for them, only our ruling elitist turds do because they've been to the best and brightest re-education camp here in the Union of Soviet Socialist Slave States of America and now know what to do to improve our socialist utopia to be the envy of the world. With that said, let us all call our superiors in the Politburo immediately, and let them know we stand behind them in controlling all our health care needs as they see fit. What could possibly go wrong?

  • tinwhistler||

    Trump needs to have Congress to send him several bills to sign before the Christmas recess:

    1. The elimination of Anchor Babies
    2. Full funding for the Physical Wall
    3. Increase the fine for hiring an illegal alien to $1 million each (Financial Wall & Self Deportation)

  • aajax||

    What good is increasing the fine if you are not going to charge anyone anyway?

  • tinwhistler||

    Trump needs to have Congress to send him several bills to sign before the Christmas recess:

    1. The elimination of Anchor Babies
    2. Full funding for the Physical Wall
    3. Increase the fine for hiring an illegal alien to $1 million each (Financial Wall & Self Deportation)
    4. The elimination of Obamacare

  • Iation||

    There is no good reason, other than anti-free-market protectionism, why Americans should not be able to take advantage of the competitive global market in older non-patented generic drugs.

  • JFree||

    There is no good reason - except that Americans are completely protectionist when it comes to protecting high-income jobs (eg Wall St and the role of the dollar as reserve) and high-profit margin companies (eg pharma).

    For everyone else, 'free trade' (and to a degree even neoclassical/marginalist economics) has simply become a globalist religion to ensure that the serfs and slaves are competing with each other for scraps. They got nothing unique to offer - not even their willingness to fight/die in wars - so who gives a shit?

  • Architect of Liberty||

    Easy solution being overlooked by the commentariat -- reduce the FDA rules/regulations related to bringing a new drug to market -- this directly results in the reduction of wholesale/retail prices because of the lower R&D/study costs borne by the Pharma companies.


    POTUS can do this with an EO signature if the rules/regulations were not specifically detailed in legislation that was passed/signed.


    Concurrently, abolish patent laws WRT drugs.

  • aajax||

    In the absence of market mechanisms to control drug quality (thanks in part to creation of the FDA) your proposal might be principled but quite risky.

  • tpaine||

    All centrally planned price manipulation is bad.
    What if the prices the rest of the world pays for medicine is not actually being subsidized by Americans. To believe this is to believe that pharmaceutical companies lose money everywhere else in the world on everything they sell.
    Except to American.
    Americans are simply the victims of the natural outcome of government price-fixing

  • Lester224||

    Why should the U.S. cover all the costs of R&D for new drugs? Those costs should be shared world wide. If the drug companies can't make a profit with what the world is willing to pay for drugs, they should increase efficiency in their operations. The profit margins are huge for pharma in the U.S. right now.

  • JFree||

    The profit margins are huge for pharma in the U.S. right now.

    Not if you look at financial statements. Pharma is 'highly profitable' in places with low corporate taxes - and barely scraping by in places with high corporate taxes. The magic of bullshit transfer accounting.

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