Why Price Controls Are Not The Right Answer

This morning, the Washington Post published an article regarding the price of prescription drugs.  David Hilzenrath authored the article, entitled "Higher Drug Prices Feared After 'Donut Hole' Plan," which highlights concerns that biopharmaceutical manufacturers will raise prices on prescription medications.

Hilzenrath highlights the move that private insurance companies are making to curb prescription drug prices, writing.

"In a June letter to the Department of Health and Human Services, UnitedHealth took the extraordinary step of calling for price controls, saying the government should "require Manufacturers to maintain a ceiling on prices that would preserve the value of the discount for beneficiaries."

Here are some important facts to remember  (My data comes from the January 2009 report on health spending released by the Centers for Medicare and Medicaid Services Office of the Actuary):

  • In 2007, prescription medicine spending growth reached a historic low of 4.9 percent, below the 6.1 percent increase for all health care services.
  • From 2006-07, prescription drug prices increased only 1.7 percent.
  • During that same time, generic drug usage increased from 63 to 67 percent for all prescriptions dispensed.
  • According to a Department of Commerce estimate, three to four additional medicines would be available every year if R&D would be fully funded by eliminating price controls in other countries.

Did you know that price controls erode incentives to innovate?  One study estimates that cutting prescription drug prices in the U.S. by 40-50% could lead to 30-60% fewer R&D projects being undertaken. A related study estimates that government imposed price controls would reduce the number of innovative new medicines launched on the market by almost 40% or almost 200 fewer new medicines available over a period of 20 years.

The question is... should we let the fear of the unknown undermine the future of our health care when so much is at stake? Shouldn't we continue to invest in innovation so we can continue to see real improvements in health care?  

Addressing the rising costs of health care is a problem that the United States needs to address.  But in addressing this problem, we cannot lose sight of our ability to bring new and innovative medicines onto the market.  Think back 20 years ago.  Remember what health care was like?  Since 1984, five-year survival rates for cancer have risen by nearly 25%.  In 1996, HIV/AIDS was the 8th leading cause of death. Today, it's not even ranked in the top 15. Now think ahead 20 years and imagine what is possible. Now imagine what would happen if we don't continue to invest in innovation and the new treatments they can bring to patients. 

Often times it is convenient to vilify others, rather than to move forward.  We believe that continued support of the free market will continue to allow innovative medicines to come to market, address the health challenges we face.