NCPA - National Center for Policy Analysis

Why Drug Benefits Will Lead Inexorably To Price Controls

August 25, 1999

The Clinton administration plan to subsidize the cost of drugs for the elderly makes it inevitable that the federal government will slap price controls on the pharmaceutical industry, economists warn. That will seriously impair the industry's ability to engage in expensive drug research and discourage it from making investments of the magnitude it currently does.

What are the steps in this probable scenario?

  • The program is bound to get more expensive as the eligible population expands and the number of available medicines multiplies.
  • To control the government's costs, Washington will put pressure on the drug industry to lower prices -- eventually imposing price controls.
  • After France and England enacted the same kind of program President Clinton is now demanding, biotech investment flowed to America -- where pharmaceuticals have not yet been treated as a public utility.
  • Price controls would necessitate a new breed of bureaucratic functionaries, known as "pharmacy benefit managers," who would report to the Health Care Financing Administration -- the same agency which is now marching into deep financial trouble.

Source: Robert M. Goldberg (Ethics and Public Policy Center), "Prescription for Price Controls," Investor's Business Daily, August 25, 1999.

 

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