I often tell my American friends that they need not speculate about the effects of price controls on medicines. All they must do is ask us Europeans. If long wait times for care, diminished access to prescription medications, and less medical innovation sound good, price controls are the way to go.
Price controls, including so-called “most favored nation” (MFN) drug pricing schemes, are the cornerstones of socialized medicine systems like those found in Europe.
So it is with a degree of bewilderment that many Europeans, including economists like myself, have now watched American policymakers on both sides of the political aisle pursue the same disastrous approaches to health care that have uniformly failed in the European nations that have adopted them.
As a European and as an economist, I assure you: I know price controls when I see them. In this case, MFN is nothing more than a political euphemism for government price-setting. And unfortunately, I have seen the results of price controls: dramatically less innovation, rationing and reduced patient access to medicines, waiting lists, and medical decisions being made by bureaucrats instead of patients and their doctors.
Price controls and big-government, centralized control of health care eradicate the market forces that drive innovation and incentivize providers to offer the best care to patients. Before European countries began to socialize their health care systems, we led the world in medical research and development of pharmaceutical innovations. But that steadily declined as price controls disrupted the market and removed the incentive to innovate. Investments in research and development dried up as drug makers no longer risked the tremendous investments of time and resources necessary to develop ground-breaking drugs.
Where did that investment go instead? To the United States, the world’s leader in the development of new treatments, which spent $96 billion on R&D in 2023. Over half of the world’s R&D investment stems from U.S.-headquartered companies; Europe contributes less than 30 percent.
Under an MFN price-fixing scheme, American leadership in pharmaceutical innovation is at tremendous risk. MFN pricing will drastically reduce R&D investment, potentially leading to 340 fewer new drugs being developed in the coming years. And that is without taking into account the ramifications of tariffs and the potential for shortages.
Meanwhile, price control mandates in the U.K., France, and Spain continue to inhibit medical innovation. For the average European, that lost innovation can be difficult to measure. How could a patient know what new treatment might be available to them had price controls not prevented its development?
But when it comes to accessing new drugs currently on the market, a look across the pond paints the impact of price controls on patient access in stark contrast: in the U.S., patients and their health care providers have access to roughly 74 percent of new drugs introduced since 2011. In the U.K., that figure is 43 percent.
And even when new drugs are available, European patients must wait longer for them due to rationing. For example, in July of this year, less than 70 percent of cancer patients in England were able to begin treatment within prescribed timescales.
These are the distressing health care outcomes that American patients may face if they follow the path of European nations. The U.S. health care system is far from perfect, and there are many improvements that can be made, including greater transparency and more market-oriented health care solutions.
But take it from a friend in Europe: whatever you may call it—Medicare negotiation, “most favored nation” international pricing indexes, price-setting, reference pricing, importing socialized medicine—price controls are not the answer.
Dr. Barbara Kolm is a member of the National Council of Austria, the Director of the Austrian Economics Center, and President of the Friedrich A. v. Hayek Institute.
