Since the Democrats regained control of the House of Representatives, they haven’t accomplished much, aside from talking. Some of what they have to say is just partisan politics.
There are other things they are talking about doing of which we should be wary. One is House Speaker Nancy Pelosi’s plan to reduce prescription drug prices by promoting binding arbitration.
Pelosi’s plan empowers unaccountable government officials to have the final word on how much Medicare should pay for certain drugs. This price control scheme by a different name approach has attracted support from numerous lawmakers, but it’s a terrible idea. Implementing this plan will reduce competition, the one mechanism that guarantees seniors can get what they need at the lowest cost and highest quality.
Currently, the government doesn’t provide prescription drug coverage to Medicare beneficiaries directly. Instead, it allows private insurers to sponsor and sell drug plans to seniors. Insurers compete with one another to win seniors’ business.
Insurers are usually able to negotiate bulk purchase agreements with drug companies. Occasionally though, insurers think a drug company’s requested price is too high. Right now, when negotiations over price stall, the government doesn’t do anything. The feds let insurers decide which drugs to include or exclude from plans.
Pelosi’s vision allows Medicare officials to intervene in negotiations. If an agreement can’t be reached, Medicare administrators could appeal to a government-appointed arbitrator. Medicare would suggest a price. So would drug manufacturers. Both sides having put forward their best arguments, the arbitrators, in theory independent and unbiased, would choose one or simply propose their own price in a legally binding decision neither side could appeal. Except, unlike the way that works at the Better Business Bureau, the government arbitrators would probably be predisposed to side with Medicare in any conflict.
Germany passed a similar arbitration policy in 2010. As a result, drug makers are less willing to sell their products in Germany. When a new cancer medication is approved by regulators anywhere in the world, American patients can access it within three months on average. By contrast, German patients must wait 11 months on average.
Binding arbitration would discourage innovation and leave patients without the drugs they need. It takes an average of $2.6 billion to create a new medicine. Only 12 percent of drugs that enter the first phase of clinical trials are approved by the FDA. If the government could indirectly set artificially low prices for medicines, such investments would become too risky. President Trump must reject the Pelosi plan in favor of a market-based approach that uses competition to bring prices down.