It is easy for politicians to bash pharmaceutical companies for high drug prices and promise voters government can force those prices lower, without discussing the true consequences of such a policy. Self-described socialist Senator Bernie Sanders, 2016 candidate for the Democratic nomination for President, has introduced legislation to impose price controls on prescription drug medications.
The target is the very prescription drugs covered by Medicare Part D, which furnishes medications to tens of millions of seniors. Premiums for the Part D program have remained quite stable, and are projected to dip slightly for 2018. Medicare Part D premiums rose only from $31.08 to $35.63 between 2012 and 2017.
Medicare Part D “premiums haven’t grown at the same rate as the drug utilization and spending trends even when they were increasing, which shows that plans have been doing a good job of controlling growth and managing utilization from year to year,” Kelly Brantley, vice president for Avalere, told Inside Health Policy.
If only Obamacare was so good at keeping prices down and premiums stable. Yet politicians like San. Sanders and others want to impose price controls on prescription medications. There is one major problem with this approach: it doesn’t work.
While there is concern that drug prices are a threat to the long term viability of the program, imposing price controls will not solve the problem. Development of new medications depends heavily on research, which requires a significant level of investment. Price controls on drugs would diminish investment in drug research, leading to less innovation and availability of drugs to consumers.
Price controls often lead to shortages of the products regulated, such as we saw with the gasoline shortages of the 1970s caused by price controls. While politicians can easily score points with voters promising they will bring down drug prices, price controls always result in higher prices and/or shortages of the products to consumers.
UnitedHealth Group, Anthem, Humana and now Aetna each exceeded Wall Street’s profit projections for the last quarter, showing that they are stronger now than ever. At the same time, most them have withdrawn from the Obamacare exchanges. These same insurance companies, wanting to enhance their bottom lines, are lobbying for price controls on prescription medications as well. This is at the same time the health insurance companies are reporting huge profits while also seeking a taxpayer bailout for having lost money participating in the failed Obamacare exchanges.
The success of Medicare Part D in providing prescription drugs to tens of millions of senior citizens at stable costs is far too great to risk by imposing price controls on prescription medications. There is too much to lose with another failed experiment in government price controls.