President Trump has pulled the trigger on actually lowering prescription drug prices. By ending arbitrary trade barriers he could save Americans over $50 billion a year. Even staunch believers in free-market capitalism recognize that there are areas where the government is required to put on a striped shirt and play the referee.
Republicans going back to Teddy Roosevelt have understood that. Especially when companies have acquired monopoly powers. President Roosevelt ruffled feathers among Wall Street tycoons when he launched his effort to break up the trusts. Trusts that were abusing their market power, creating monopolies. American consumers were being harmed and economic growth stifled. The tycoons had figured out that it was easier to buy out or merge with competitors than to actually compete with them. Roosevelt understood that monopolies and free-market competition were like oil and water. The concentration of too much market power inevitably leads to abuse.
Donald Trump understands that as well.
When our Patent Office issues a new patent for a drug, we are essentially granting them monopoly power. They can sell that lifesaving drug (in the United States) for as much as they want. Insurance carriers try to negotiate better pricing. Pharmaceutical Benefit Managers came along promising to bargain on behalf of insurance companies and health organizations. The PBM’s quickly became part of the problem, consuming nearly all of the savings.
All of this led to finger pointing, creating a convenient smokescreen for the real reasons for runaway drug prices in the United States. Along the way, Congress has made matters worse. They don’t even allow Medicare (unlike the VA) to negotiate for better prices. The result is that Americans are forced pay much more for patented medications than people in any other industrialized nation.
The drug industry has framed the debate as a choice between socialized medicine and the free market. That’s a classic canard. Monopolies are antithetical to free markets. We grant utilities monopoly status. We don’t allow them to charge whatever they want. We regulate them. Try to name a monopoly that sells an essential product or service that is allowed to set their own prices?
The real question is how do we balance these competing interests? We believe in intellectual property rights. We need to continue to incentivize investment into new innovation. Bear in mind, however, much of the basic research that ultimately leads to new drugs is already underwritten by American taxpayers through the NIH and the CDC. And the drug industry now spends more on marketing and advertising than R&D. How do we protect those interests while keeping American consumers from being held hostage and treated unfairly?
Well, success leaves clues.
Maybe our policymakers should do a little serious research. How do other countries balance these competing interests? What are they doing that we might consider?
Canada is not that far away. Canadian officials would welcome a Congressional Delegation to show them how their system works. At the heart of it is the way they grant patents for new drugs. The drug companies deserve intellectual property protections. The Canadian government retains the right to protect its citizens from monopolistic, predatory pricing.
So Canada puts conditions on the drug patents they issue. They require companies to negotiate prices. The Canadians created the Patented Medicine Prices Review Board (PMPRB). It functions much like a state Utility Commission. Like their utility counterparts, this board does some spadework into the R&D and production costs. They allow for a reasonable rate of return. In negotiations, the PMPRB has a strong hand.
The drug companies call this price fixing. OK. Perhaps they will share just how profitable their Canadian operations really are? Remember in the last tax reform, companies were encouraged to repatriate profits with lower tax rates? American drug companies were holding over $300 billion offshore. Nearly all of it in nations that they claim have “socialized medicine price controls.” You can’t repatriate hundreds of billions in losses.
Facts are indeed stubborn things. It’s time to scrape away the veneer and find out just how the Canadian system actually works. Thankfully, President Trump has started the ball rolling. It’s time for Congress to pick it up and run with it.
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Gil Gutknecht served six terms in the U.S. House from Minnesota. He authored legislation which passed the House that would have allowed Americans to import Rx drugs from 16 industrialized countries. This article first appeared in Townhall and was republished here with permission.