Beware the Lower Drug Costs Now Act

By Tim Beck

The U.S. House of Representatives is currently deliberating on H.R. 3, The Lower Drug Costs Now Act. This legislation seeks to create an international pricing index and would give federal government bureaucrats the power to set an upper limit on drug prices equal to 1.2 times the cost of a drug's average price in six specified countries (Australia, Canada, France, Germany, Japan, and the United Kingdom).

The stated purpose of this legislation is to establish a fair price negotiation program, protect the Medicare program from excessive price increases, and establish an out-of-pocket maximum for Medicare Part D enrollees.

However, this is an ill-conceived bill that is nothing more than federal government price controls. It will ultimately limit access to life-saving medicines, stifle innovation, and increase spending in the long run. The Democrat party has once again abandoned market-based reforms and has shown their inclination to pursue harmful government price-setting controls.

In order to coerce companies into complying with the provisions of this bill, if a manufacturer declines to negotiate the price of one of their products, they could face an excise tax of as much as 95% on that product's revenue from the previous year. This type of meddling in the marketplace should be rejected by our elected representatives.

Data clearly shows that government price-setting has had a negative impact on all six countries included in the international pricing index. The outlook for the U.S. is just as grim. The California Life Sciences Association's recent study shows that H.R. 3 would reduce the development of new medicines by 88% in California research facilities alone and eliminate 80,000 R&D jobs nationwide.

Other studies show the chilling effects this legislation would have on innovation. Countries with price controls suffer a decline in pharmaceutical research and development. In 1986, European firms led the U.S. in spending on research and development. After the imposition of price controls, they fell behind, and by 2015 they trailed the US by 40%.

The President's Council of Economic Advisers has stated that price controls might save money in the short term but would cost more in the long run. Government price-setting, it wrote, "makes better health care costlier in the future by curtailing innovation."

China has a plan to overtake the U.S. as the leader in medical innovation. The reduction in U.S. spending on medical research, which will inevitably occur as a result of price setting controls, will have long term ramifications that pave the way for China to become the leader in an area in which the U.S. currently excels.

*This article was written based on information in the Heritage Foundation's summary of HR3.