Don't Bite the Hand That Cures Us:
A Case Against Price Caps on Pharmaceuticals
The
debate over price caps on medications has been heightened with Barack Obama’s
and Hillary Clinton’s support of universal healthcare in some form. In order to
reduce costs, they have proposed price caps. It goes under the rhetorical guise
of “negotiating with
pharmaceutical manufacturers the prices that may be charged” and other
insidious forms—but the candidates are speaking of price caps. Which they essentially all are in that they limit the
free market’s balance of supply and demand.
Their
goal is to help all Americans, rich and poor alike. In my opinion, their goal is
noble. We should try to help one another, regardless of income. But their methods
are flawed.
Enacting price caps will have four disastrous consequences: There will be
less research and fewer specialized cures; new companies will avoid the
pharmaceutical industry; and current researchers will leave the pharmaceutical
industry. Each of these consequences will indirectly lead to more Americans
falling ill and dying every year. This is because price caps hamstring those
who research, develop, and sell our cures.
Many
people are attracted to the price cap argument because: In the short term,
medications WILL become cheaper with price caps. In the long term, however, all
of us will suffer from fewer medical cures.
The
lower prices, which are a result of the price caps, will lead to decreased
revenue for pharmaceutical companies. The decreased revenue will result in less
research and some companies going out of business. Both of these consequences
would be harmful to you and me. Pharmaceutical companies reinvest our money,
which is their revenue, to find additional cures. So, decreased research revenue
and pharmaceutical companies out of business means fewer breakthrough cures for
our diseases.
Pharmaceutical
companies will avoid research on specialized, price-capped cures, much like you
and I would avoid opening a gourmet restaurant if the government set price caps
on meals. Now thankfully, the government does not try to dictate that all meals
must be sold for under $5. But this is not true with medications. Right now,
many U.S. politicians are asking that expensive medications be price-capped. If
put into place, this will mean that those pharmaceutical companies that invest
in expensive cures will halt their expensive research, or they will go out of
business. In other words, there will be fewer “gourmet” cures. So people with
rare diseases, such as Achalasia, or diseases expensive to research, such as
AIDS, will increasingly find fewer and fewer new medications that improve their
quality of life.
Pharmaceutical
companies will avoid research on price-capped cures. This is because companies
don’t know if they’ll be able to recoup the money they invested. No matter what
dollar amount the government decides the price cap will be, the very threat of
it will dissuade companies from taking risks to cure those diseases. But if we
allow these companies to set their own prices, they will be able to evaluate
all the risks and undertake the maximum amount of research.
Hand-in-hand
with price caps is a loss of qualified researchers in the pharmaceutical
industry. Price caps restrict research revenue, which goes to pay workers’
salaries. If they aren’t earning competitive salaries, workers will leave the
pharmaceutical industry for similar non-medical industries—ones that are
unaffected by price caps, such as technology or biology.
Furthermore,
fewer new companies will develop medications. The threat that price caps will
lower revenue will cause entrepreneurs and potential businesses to enter
non-medical-related industries because this is where the profit lies. But wouldn’t it be better for these new
companies and researchers to develop cures for our diseases instead of polymer
research for hi-tech skis?
Joseph McCleary writes for the Evergreen Freedom
Foundation in Olympia, Wash. It is a policy center dedicated to individual
freedom and freedom in the healthcare market.
This TRA feature has been edited in accordance with TRA’s Statement of Policy.
Click here to return to TRA's Issue CXXXIX Index.
Learn about Mr. Stolyarov's novel, Eden against the Colossus, here.Read Mr. Stolyarov's new comprehensive treatise, A Rational Cosmology, explicating such terms as the universe, matter, space, time, sound, light, life, consciousness, and volition, here.