Healthcare Price Controls Would Turn U.S. Into Venezuela
If you’re outraged about prescription drug prices, what do you do? If you’re Hillary Clinton or Bernie Sanders — or if you work at the Center for American Progress, a progressive think tank — you adopt the policies of that bastion of sound economic management: Venezuela.
Yes, that’s right. To contain drug costs, the left is now advocating for the exact same measures the Latin American basket case has employed to control the price of toilet paper.
Ostensibly to prevent monopolies and price gouging, Venezuelan’s socialist regime rigorously controls product pricing practices. The government audits the production, marketing, and development expenses for all companies and limits profit margins.
The regime claims prices and profits are negotiated to be fair to both consumers and producers. Companies found to be non-compliant are deemed to be a threat to the public well-being and face all sorts of sanctions, including a ban on engaging in economic activities for up to ten years.
The wonks over at the Center for American Progress and in the Clinton and Sanders campaigns are copying the Venezuelan authoritarian playbook with their respective healthcare reform proposals.
They call for the federal government to audit drug development costs and profits. Companies that set prices above a specific range would be banned from the market.
What’s more, drug companies would be required to direct a minimum percentage of their revenue to research and development. Non-compliant firms would be subject to fines and possible federal prosecution.
A federal panel would decide which drugs are truly innovative and set prices accordingly. Any price that exceeds that ceiling by more than 20 percent would be presumed to be unreasonable. The government would be given the right to seize products and throw people in prison for pricing practices.
We’ve seen such policies in action in Venezuela. The results aren’t pretty.
Take toilet paper. Venezuelan price controls have discouraged production, causing shortages. The ensuing scarcity has led to black markets and government property seizures.
When announcing the “temporary occupation” of one of the Paper Manufacturing Company’s plants, Vice President Jorge Arreaza explained that the state wanted to review the “production, marketing and distribution (of) toilet paper.”
“There is no deficiency in production,” Commerce Minister Alejandro Fleming claimed — merely “an excessive demand” — caused by consumers stocking up on a much needed product whenever they can find it.
Rather than lift price controls to incentivize companies to produce the toilet paper consumers demand, the regime installed 20,000 fingerprint scanners in supermarkets and department stores to monitor how much people were buying.
Evidently, Venezuelans aren’t supposed to take economic realities like constant shortages into account when they go grocery shopping.
There is a lesson to be learned here. Companies stop making toilet paper if government price controls keep them from making a profit on it. The same will be true for medicines, if the American left succeeds in imposing price controls.
Robert Goldberg, Ph.D., is vice president of the Center for Medicine in the Public Interest.