The American Spectator

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The appellate court concluded that the legislation "directly targets and undermines [Congress's] careful balance between innovation and drug costs" since price controls were "purposefully aimed at adjusting the scope and reward of the federal patent right." In non-lawyerspeak: Washington grants patents to enable companies to earn the revenue necessary to fund research on new products, to encourage innovation.

Even the dissent in the appellate decision acknowledged that the city council was attempting to "establish patent policy" by investing city judges with the power "to determine what price is necessary to spur innovation."

After losing last year, the city still would not give up. It asked the D.C. Circuit to hold an "en banc" hearing by several judges, compared to just three in a normal appeals panel. The judges again wisely said no.

UNFORTUNATELY, DISTRICT politicians are not alone in their search for the eternal free drug. States have come up with a variety of price and use controls. State and federal officials also have pushed the "reimportation" of American medicines from abroad. That effectively means imposing foreign price controls on U.S. medicines.

One reason prices vary among countries is their radically different economic circumstances. Most people in developing nations cannot afford to buy drugs at developed nation rates. Lowering the price increases sales and revenues. But if the drugs were sold at the lower price in the U.S., they would not have been developed in the first place. You can't spend $55 billion on R&D if you collect only pennies for your products in your most important market.

Prices also vary internationally because of national price controls. The D.C. legislation presumptively treated as excessive prices 30 percent above those charged in "high-income" states, namely Australia, Canada, Germany, and the United Kingdom. But these countries have nationalized their health care systems and restrict drug prices.

In effect, these countries leech off of U.S. R&D. That's not fair to American consumers, but punishing the pharmaceutical industry with price controls won't solve the problem. If U.S. companies could overturn foreign restrictions, they would do so. Responding to this injustice by effectively subjecting them to the same controls in America would be even more unjust as well as economically perverse. Most important, doing so would reduce the availability of new pharmaceuticals.

What makes price controls so attractive politically is that the costs are invisible. People won't suffer the worst consequences of price controls for years, given the long lead time in drug development. And it is impossible to say what products won't be available since no one knows what cures otherwise would have been discovered. Cheaper drugs for voters today versus unrecognized deaths and hardship for the yet unborn in the future. What's a politician to do? The answer is all too obvious -- ask the D.C. city council.

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Trade, Health Care, Economics, Law