Price Controls By Any Other Name Smell as Rank
The famous line from Shakespeare’s Romeo and Juliet says “a rose by any other name would smell as sweet.” Like that famous illustration, international reference pricing by any other name (e.g., MFN, international price index) stinks as badly and has as destructive effects.
The “most favored nation” or MFN model from the Center for Medicare and Medicaid Innovation amounts to a government price control mechanism. It’s one form of a price control known as international reference pricing. Whatever the flavor a price control or reference pricing may be, government price controls on drugs or health care deprive the private property rights of patients, of medical providers, of medical innovators.
The Centers for Medicare and Medicaid Services in late November issued an interim final rule implementing an MFN model, importing foreign price controls for certain Medicare Part B drugs. Conservatives for Property Rights filed comments opposing MFN, also joining more than 70 conservative and free-market organizations in separate comments. The initial price control scheme floated in 2018 was an international pricing index. Both MFN and IPI import the prices foreign government-controlled health systems dictate.
What began as an effort to force “foreign freeloader” nations with government-controlled health systems to pay their fair share for American-developed brand pharmaceuticals led to adopting socialistic, artificially low prices from abroad.
MFN, like IPI and other international reference pricing, adopts foreign governments’ price controls for cutting-edge medicines. The government could apply the same socialistic tools to other medical goods and services. That dangerously treats the products of medical innovation as mere commodities, devaluing the entire front-end R&D investments.
International reference pricing schemes, as MFN does, risk the health of seniors in Medicare Part B. IRP denies these patients access to the most appropriate medication and in effect rations treatment. CMS admits “beneficiaries may experience access to care impacts by having to find alternative care providers locally, having to travel to seek care from an excluded provider, receiving an alternative therapy that may have lower efficacy or greater risks, or postponing or forgoing treatment.” CMS “assumes that utilization of MFN medicines may decrease from 9 percent to 19 percent over the course of the demonstration.” Such harmful side effects stem from any government price controls.
In short, MFN, IPI and other versions of IRP import government-fixed prices and apply them to medicines that vulnerable patients need for care received in clinical settings. Various forms of care disruption occur, including rationing, and these patients suffer needlessly and cruelly as their medical conditions worsen.
Seniors in Medicare have few options at this point. IRP changes the rules for them in the middle of the game. It does so for doctors and providers, too. IRP will drive market consolidation, run physicians out of medical practice, make Medicare as unattractive as Medicaid in which to practice medicine, and hit rural America extremely hard.
Ironically, price controls ignore the wise counsel of the Council of Economic Advisors. In 2018, the CEA produced “The Opportunity Costs of Socialism.” This report discusses how assaulting private property rights with socialist tools causes great harm. It cites how socialist takeovers of farms from private owners result in less food. It talks about the Venezuelan government’s takeover of the petroleum industry leading to less oil.
The CEA report illustrates how government-run health care, including in internationally price-referenced countries, backfires. “Lowering prices by having a single payer for innovative healthcare technologies is analogous to reducing patent lives . . . .”
Government price controls, rationing access and other restrictions on medical goods and services reduce private R&D spending, harming innovation. It has “short-term benefits lowering prices for existing technologies, but at the cost of reducing the flow of new technologies that ultimately lower the real price of health.”
We’d do well to remember what economist Thomas Sowell observed: “Whenever and wherever government controls have been put into effect to hold down prices, the most common consequence has been a reduction in the quantity supplied.” Price controls weaken supply — and governments ration access to what’s available. Price controls drive up demand — lower prices ultimately harm more citizens than they help because their government doesn’t buy enough of a medical good for all the patients needing that product.
That is, price controls always result in worsening matters, opposite to what officials claim they were aiming for. Here’s more evidence (see section 8, International Costs and Access).
Taking property rights from American patients (their health, equities in their benefits) and medical providers (the viability of their livelihoods), punishing biopharma and medical innovators and reducing innovation, rewarding socialist “foreign freeloaders.” Heck of a price to pay to “save” a little money.
Bottom line: Government price controls do more harm than good. Price controls are anathema to conservative, free-market principles. Whatever the flaws in the U.S. health system, government price controls, such as international reference pricing, are never the solution. That’s because, in essence, reference pricing and other price control schemes endanger property rights and market-based choice and competition — the keys to innovation, quality and value.