By Sally C. Pipes on 11.6.06 @ 12:07AM
The national implications of Arnold's Drug Plan.
Gov. Arnold Schwarzenegger earlier this fall signed a bill
requiring prescription drug companies to offer huge discounts on
medications to low-and middle-income Californians. The Golden
State's plan has garnered wide praise -- and many are seeing it as
a model for the nation.
If other states follow California's lead, however, the future of
America's health care is at stake.
The California Prescription Drug Initiative forces manufacturers
to lower their prices by up to 40 percent on brand-name medicine
and a whopping 60 percent on generics.
Specifically, the "price-controlled" drugs will be available to
uninsured Californians with incomes below $29,400, or about $60,000
for a family of four. Certain Californians -- like a family earning
less than $70,626 -- with significant un-reimbursed medical
expenses would also qualify. It costs enrollees virtually nothing
-- only $10 a year -- to join this program.
To enforce compliance, pharmaceutical companies that fail to
sell their drugs at the government-imposed discounts within three
years could be kicked out of Medi-Cal, the multibillion-dollar
health coverage system for low-income Californians. Thus, even
though Gov. Schwarzenegger has touted his plan as "voluntary," the
measure is better described as a shakedown. Before invoking the
hammer on the drug companies, the federal government's CMS would
have to grant approval to California. It is hard to see CMS signing
off on this plan.
In addition to Arnold's strong-arm tactics, there are plenty of
sensible reasons to resist replicating this initiative on a
national level. For starters, his plan might make sense if
government price controls actually worked, but they almost always
have the exact opposite of their intended effect.
Of all people, Gov. Schwarzenegger should know this. He saw
communism with his own eyes as a child, and witnessed consequences
of state-managed markets.
In the case of the Prescription Drug Initiative, pharmaceutical
companies would need to compensate for the forced discounts by
raising prices on people who don't qualify.
For example, a family of four with a household income of $70,000
and a child with cancer might see its drug bills increase to offset
discounts on hyperactivity medicines available to a family making
$68,000.
The bill would also have an even more pernicious side effect. It
would actually grow the ranks of the uninsured by encouraging
people not to purchase drug coverage, even if they could afford it.
After all, why would any rational person pay a private insurer
when, for just $10 a year, the state would extort a deep discount
from the nation's drug firms.
If other states follow Gov. Schwarzenegger's price-fixing
scheme, the law of "unintended consequences" would have far more
severe repercussions. It would result in less investment, less
innovation, and fewer new medicines for the entire country.
Today, it costs between $800 million and $1 billion to bring a
new drug to market. Cancer patients have hope precisely because
companies are willing to risk that money in developing drugs like
Avastin, Erbitux, Gleevec, Herceptin, Nexavar, Sutent, and many
others.
Ironically, if Governor Schwarzenegger's plan had been
implemented across the country 25 years ago, very few of these
drugs would have been invented in the first place because it
wouldn't have been profitable, so there would be no life-saving
medicines to discount.
If state governments make breakthrough drugs unprofitable,
companies will simply stop trying to invent them. In my home
country of Canada, for example, the government's intervention in
drug pricing has affected the behavior of the industry to the point
where Canadian pharmaceutical companies now invent drugs at half
the rate of the United States.
And even in the United States, researchers at the University of
Connecticut's Center for Healthcare and Insurance Studies found
that, since 1960, government interference in drug pricing caused
$188 billion in lost spending on research and development.
The "lost" medicines that might have been developed with that
money could have saved 140 million life years.
What a wonderful example Arnold is setting. Let's hope other
states don't follow his lead.
topics:
Health Care, Law, Communism
