Reference Pricing Will Stifle Innovation and Hurt Patients

In recent months, Democrats in Congress and on the campaign trail have relentlessly pushed policies that will move the U.S. towards socialism.

For instance, Freshman Congresswoman Alexandria Ocasio-Cortez (D-NY) has proposed the $94 trillion Green New Deal, a proposal that has been embraced by many Democrat presidential candidates.  Senator Elizabeth Warren (D-Mass.) has called for a wealth tax and has proposed cancelling student debt, while Bernie Sanders (I-Vt.) has called for a government takeover of the Health care system that is misleadingly called “Medicare for All.”

On almost every issue, Republicans have stood firm in opposition. However, on health care, some on the right have endorsed a concept that would move the U.S. toward socialism – foreign reference pricing.

This proposal has been championed by Senator Sanders and Progressive Caucus Vice Chair Rep. Ro Khanna (D-Calif.). They have introduced legislation that would tie the average cost of all medicines to the median price charged in five countries – Canada, the United Kingdom, France, Germany, and Japan.

Bizarrely, Republican Senators Rick Scott (R-Fla.) and Josh Hawley (R-MO) have introduced legislation that is even broader than the Sanders-Khanna bill as it would require U.S. prices to be no higher than the price in each of the five countries.

Even President Trump has proposed a narrower reference pricing policy that would tie the cost of Medicare Part B physician administered drugs to 14 countries including Canada, the United Kingdom, France, Germany, Japan, Ireland, Greece, and the Czech Republic.

Reference Pricing Opens the Door to Government Controlled Health care

This support for reference pricing is misguided as it explicitly blesses more government control over the health care and plays into the ultimate goal of the left of big government.

Reference pricing ties the price Americans pay for drugs with the price foreign countries pay.

The problem with this is that these countries frequently utilize market distorting price controls and other heavy-handed government tools to determine the cost of medicines.

There is no negotiation and manufacturers are often forced to accept lower prices as dictated by the government.

In effect, this constitutes the importation of socialist price controls and creates a drug pricing system where prices are not set by supply and demand but are set through a web of government mandates and price fixing.

Importing this system into the U.S. undermines and suppress support for competition and innovation that is the hallmark of programs such as Medicare Part D – the Republican created drug program which harnesses the private sector to lower costs and increase access.

Politically, this plays into the hands of the progressives that are pushing single-payer health care and are seeking to have the government control the entire health care system.

Reference Pricing Will Harm Innovation and Access to Medicines

Not only will reference pricing open the door to further expansions of government, the proposal will end America’s role as a leader of medical development and result in higher long-term costs to the health care system.

Developing new medicines is an expensive, time consuming process – it costs an innovator roughly $2.6 billion in investments and time costs to develop a drug and another $300 billion to obtain Food and Drug Administration (FDA) approval through clinical trials and other tests.

U.S. manufacturers are willing to make this steep investment because they are able to recoup these costs.

This innovation also benefits the U.S. in the form of high-paying jobs, a stronger economy R&D, and access to more life-saving medicines.

In fact, of the 290 new medical substances that were launched worldwide between 2011 and 2018, the U.S. had access to 90 percent. By contrast, the United Kingdom had 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent. The reference pricing policies used in Europe delay new drugs coming to market by an average of 14 months, according to one study.

If the U.S. adopts the same market distorting policies utilized overseas, innovation and the creation of new medicines will be severely curtailed – a threat that the White House Council of Economic Advisers warned of in a report released in February 2018:

“If the United States had adopted the centralized drug pricing policy in other developed nations twenty years ago, then the world may not have highly valuable treatments for diseases that required significant investment.”

The fact is, foreign reference pricing opens the door to further expansions of government and will harm American innovation and access to new medicines.

While measures to reform the Health care system should be welcomed, this proposal is a far-left idea that should be rejected by Republicans and advocates of competition and innovation.

Alex Hendrie is Director of Tax Policy at Americans for Tax Reform. A free-market organization dedicated to limited government and lower taxes.