Despite the number of lives they save and the amount of pain they alleviate, drug makers are typically the target of scorn, derision, and resentment. If there is one issue that can usually garner bipartisan outrage it is drug prices. From Martin Shkreli raising the price of a life-saving HIV drug to Mylan’s six-fold price hike to the EpiPen, Americans get upset when these scandals hit the front page, and politicians spring into action, usually with costly solutions that make matters worse.
But President Donald Trump thinks he has a genuine plan that can reduce the cost of pharmaceuticals.
Speaking on the White House lawn alongside Alex M. Azar II, the Secretary of Health and Human Services, the president recently promised to “bring soaring drug prices back down to earth.” The president slammed the “tangled web of special interests” conspiring to keep drug prices unaffordable for American consumers.
Trump stated in his prepared remarks:
“Everyone involved in the broken system — the drugmakers, insurance companies, distributors, pharmacy benefit managers and many others — contribute to the problem. Government has also been part of the problem because previous leaders turned a blind eye to this incredible abuse. But under this administration we are putting American patients first.”
He is right to slam a crony system, but he needs to go farther than just blaming socialist nations. The U.S. government is mostly responsible for skyrocketing drug prices. But how?
President Trump outlined several aspects of his blueprint. Some of these may be admirable measures, like refusing to give the federal government the power to directly negotiate lower drug prices for Medicare or ending the practice of foreign freeloading. Others may not work, such as requiring companies to disclose prices in television advertisements or modifying the drug-rebate scheme.
Is the pharmaceutical sector frightened? Not the slightest. Soon after his speech, Merck & Co jumped 2%, Regeneron Pharmaceuticals Inc. rose 6.2%, and CVS Health Corp. advanced 3.2%.
No matter what you think of the president’s proposal, Trump and the Republicans are addressing a problem that many Americans think is an imperative issue. According to a Kaiser Family Foundation survey, half the country believes drug pricing legislation is a “top priority” and 80% say drug prices are “unreasonable.”
Legalize Importation, Abolish the FDA
According to the White House, one facet of surging drug costs is that crony drug firms game the system, like regulations and patents, to maintain their monopolies.
Under current U.S. government law, there is a prohibition on the importation of certain drugs. So, when a drug producer raises the price of a product by 5,000%, it is generally because they don’t have any competition, either foreign or domestic.
In 2015, Martin Shkreli spiked the price of Daraprim from $13.50 to $750. Meanwhile, a generic version of the same drug is sold in India at a minuscule price of 10 cents. He didn’t need to lobby the federal government, bribe politicians, or use nefarious methods to achieve this. Shkreli just took advantage of federal laws. Who can blame him?
Experts have conceded that it can be easier to import foreign drugs rather than having it manufactured in the U.S. for a small number of patients at a ballooning cost. They also note that many foreign drugmakers do not apply for regulatory approval in the U.S. because it’s too expensive.
To obtain approval from the Federal Drug Administration (FDA), it can cost as much as $1 billion and take as long as 10 years. No wonder why some companies don’t want to go through the hassle.
Simply put: it is the federal government that places immense obstacles to cheap drugs.
For now, lobbyists are pleased that Trump isn’t considering importation.
Cheaper Drugs? Slash Regulations
What President Trump needs to do is shrink central planning, slash burdensome red tape, and abolish the FDA. Importation would be effective, but so would enabling competition.
The Mylans and the Shkrelis of the pharmaceutical sector wouldn’t get away with triple-digit price hikes if the industry had more competition. Another business would step in, manufacture an alternative, and satisfy consumer demand. And this has happened – Teva Pharmaceutical attempted to sell a generic epinephrine injector (EpiPen), but it was blocked by the FDA.
Whenever a new scandal breaks in the pharmaceutical sector, politicians hold hearings, demand probes, and suggest more state intervention. This is mere political theater, not actual solutions.
A common prescription from the left is more regulation, price controls, and government oversight. Despite creating the problem in the first place with these socialist concepts, Democrats and many Republicans still insist that bureaucrats can lower prices for consumers.
Unfortunately, as legendary economist Ludwig von Mises famously explained in Middle of the Road Policy Leads to Socialism, these public policy remedies will just diminish any semblance of the free market and enhance state control over drugs. Regulations only create more regulations, which lead to heightened cronyism, higher prices, and widespread shortages. The hallmarks of socialism.
Do you support the president’s drug plan? Let us know in the comments section!
Andrew has written extensively on economics, business, and political subjects for the last decade. He also writes about economics at Economic Collapse News and commodities at EarnForex.com. He is the author of "The War on Cash." You can learn more at AndrewMoran.net.
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