As we've highlighted, the dangerous effort to weaken critical patent protections for U.S. pharmaceutical…
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Image of the Day: Private Sector Pharmaceutical Investment Propels Innovation

As we've highlighted, the dangerous effort to weaken critical patent protections for U.S. pharmaceutical innovators often minimizes the role of private investment and exaggerates the role of public funding.  This offers a critical corrective at a moment when American drug and vaccine innovation is more important than ever:

[caption id="" align="aligncenter" width="530"] The Critical Role of Private Pharmaceutical Investment[/caption]…[more]

May 14, 2021 • 09:16 AM

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On Pharmaceuticals, HHS Contemplates Disastrous New Price Controls Print
By Timothy H. Lee
Thursday, November 01 2018
Government price controls undermine intellectual property rights, stifle innovation and ultimately punish consumers in the form of fewer innovative pharmaceuticals.

When you think of government price controls, what images immediately come to mind? 

For Americans of Generation X or older, it might be depressingly long lines of cars snaking down public streets attempting to buy gas during the 1970s. 

For others, it might be contemporary Venezuelan grocery store shelves, emptied of even such basic staples as toilet paper. 

Whatever images come to mind, the simple, inescapable fact is that price controls never work.  The ironclad economic laws of supply and demand render price controls unworkable in the past, unworkable in the present and unworkable in the future. 

Which makes it all the more perplexing that the Trump Administration, which for nearly two years has cultivated a stellar economy by applying the laws of economics more masterfully after years of Obama Administration malaise, now contemplates imposing artificial price controls on pharmaceuticals. 

America enjoys  by far  the most innovative and beneficial pharmaceutical industry in the world, accounting for approximately two-thirds of all new lifesaving and life-improving drugs brought to market across the globe.  The price control regime contemplated by the Trump Administration, however, would jeopardize the industry, and must be reconsidered before catastrophic and irreversible damage is inflicted. 

To be sure, healthcare costs remain a legitimate concern, and it's understandable that the Trump Administration seeks to address the issue.  Its proposal, however, would make matters worse, not better. 

Here's what the administration has proposed, and why it's so dangerous. 

Last week, the Department of Health and Human Services (HHS) proposed a "foreign reference" drug price regime for pharmaceuticals covered by the federal government's Medicare Part B program.  Simply stated, that means that Medicare would artificially impose a new pricing system based upon an "international pricing index" reflecting what other nations pay for drugs developed in America. 

In other words, foreign nations' price controls would be imported to America, rather than exporting our more effective free market policies to their shores.  Since many of those nations impose single-payer socialized healthcare systems, this constitutes a backdoor method of bringing socialized medicine to the U.S. 

Although some may find superficial allure in importing other nations' price controls to America, understanding the consequences should disabuse them of the merits of that policy. 

Namely, the reason that many other nations pay less for pharmaceuticals is that their socialized healthcare systems threaten to ignore drug patents and simply sell generic copies if drug makers refuse to comply.  That amounts to a form of extortion, and a Trump Administration that has generally demonstrated welcome respect for intellectual property rights should find it particularly offensive. 

Moreover, those nations' price controls prove dangerously penny-wise but pound-foolish in the form of diminished access to new drugs. 

As noted by a Wall Street Journal analysis, American consumers enjoyed access to 70 of 74 new cancer drugs developed between 2011 and 2018, or 95%.   In contrast, only 74% of U.K. patients, 49% of Japanese patients and just 8% of Greek patients could access those new drugs.  Whereas American patients can typically obtain new drugs immediately upon approval, other industrialized nations impose months or even years of delay as a consequence of their policies. 

Thus, other nations whose systems we're preparing to import simply delay the arrival of new drugs or deny them entirely.  "Better quality care in the U.S.," the Journal summarizes, "is why America outpaces 10 European countries on cancer survival rates." 

Although many Americans are distressed by the prices of some drugs, the fact is that a very small percentage of potential new drugs ever make it to market after enormous R & D costs, exhausting safety trials, effectiveness tests, bureaucratic hurdles, foreshortened patent protections and a punitive product liability environment.  So by imposing artificial price controls, governments make it more difficult to develop and commercialize new medicines, which in turn harms consumers in the form of fewer new drugs to extend and improve life. 

Even the World Health Organization (WHO) acknowledged that unwelcome effect in its recent analysis of price controls' effect on pharmaceutical development: 

Every time one country demands a lower price, it leads to a lower price reference used by other countries.  Such price controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing those policies. 

So there you have it. 

Government price controls undermine intellectual property rights, stifle innovation and ultimately punish consumers in the form of fewer innovative pharmaceuticals. 

The Trump Administration has generally demonstrated mastery of fundamental economic principles and market stewardship to date.  Let's hope that it quickly comes to its senses and applies that same wisdom in this critical sphere of American life. 

Quiz Question   
What was the last year in which gold was used as the basis for valuing the U.S. dollar?
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Notable Quote   
 
"My colleague Casey Mulligan of the University of Chicago and I predicted in the Wall Street Journal three months ago that the $300 per week extra unemployment benefits would mean 5 to 6 million people not going back to work because the government was paying them more not to work. The Left laughed at this prediction. Now, we see record jobs going unfilled, 8.1 million, even when there are 9 million…[more]
 
 
—Stephen Moore, Co-Founder of the Committee to Unleash Prosperity and Former Member of President Trump’s Economic Recovery Task Force
— Stephen Moore, Co-Founder of the Committee to Unleash Prosperity and Former Member of President Trump’s Economic Recovery Task Force
 
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