Reining In Prescription Prices Is a Seductive Idea. But It Might Kill You.

James P. Pinkerton is a fellow at the New America Foundation in Washington, D.C.

Why not have price controls on pharmaceuticals? That’s a tempting idea for the federal government, which is desperate to restrain its spending and the size of its deficit. But a closer look -- and a look back at history -- shows that price controls are the falsest of false economies.

Uncle Sam has a problem, to be sure. The typical senior shells out $1,285 a year for prescription medications, with new cures -- and new costs -- presenting themselves every day.

Estimates on the cost of the new prescription drug program for seniors have already ballooned 30%, to $540 billion over the next decade, and so politicians are rushing in to “help.”


In fact, on the very day that President Bush signed the drug benefit bill, a bevy of mostly liberal lawmakers announced an intention to radically reshape the new law.

Sen. Edward Kennedy (D-Mass.) declared that the president had “sold out” seniors, while House Minority Leader Nancy Pelosi (D-San Francisco) added that the new law was a “bitter pill” for seniors. Their proposed solution was to put forth a bill of their own, one that gets the government into the game of jawboning down prescription drug prices. Under it, Medicrats would be allowed to negotiate directly with drug makers, which they can’t do under the Bush-signed bill.

The Kennedy-Pelosi effort has gained momentum. Sen. John Kerry, the apparent Democratic presidential nominee, has added his oomph, promising that he will do everything to make sure “the American people have affordable medicine available to them.”

That all sounds innocent, doesn’t it? What’s wrong with negotiation? And surely there’s nothing wrong with affordable medicine.

The problem is that it won’t be a real negotiation. The federal government is so big and so powerful, as former head of the Medicare program Gail Wilensky said, that “government doesn’t negotiate prices; it sets them.” And so medicines will be affordable -- for as long as they are available. But as in some present-day addendum to Ayn Rand’s classic novel “Atlas Shrugged,” price controls could cause capitalists and their capital to go on strike; they could pursue more profitable ventures elsewhere in the free market, leaving the rest of us alone with our illness.

To be sure, the idea of price controls is nothing new. In their 1979 book, “Forty Centuries of Wage and Price Controls: How Not to Fight Inflation,” economists Robert Schuettinger and Eamonn Butler chronicle a long and sorry history of price regulation, followed by shortages. In the 4th century, the Romans imposed price controls on food. And why not? Everybody needs to eat, right? But the result was counterproductive, as recorded by one ancient historian: “The people brought provisions no more to market, since they could not get a reasonable price for them.”


Many Americans will remember the “energy crisis” of the 1970s, which began when Richard Nixon imposed price controls on energy in 1971 -- everybody needs energy, right? -- and ended when Ronald Reagan finally lifted those price controls in 1981. Since then, the price of energy has gone up and down, to be sure, but at least energy has always been available -- with no more gasoline-pump lines.

And that’s the problem with price controls on prescription drugs. Kennedy and his crew don’t like to mention the certainty that drug price controls will lead to drug shortages; they prefer to act as if pharmaceuticals grow on trees. But the root fact is that the pharmaceutical companies spend $30 billion each year on research and development. If Uncle Sam cuts down their prices, will they really continue to invest so much in the medicines of the future? Will they develop drugs that improve and save lives?

The answer could be a matter of life and death for millions.