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IPI Opposes IPI: Problems with a Prescription Drug Pricing Index

Dallas, TX: The Institute for Policy Innovation (IPI), a 33 year-old free market public policy research organization, released this statement in opposition to the Trump administration’s International Pricing Indexing (IPI) plan for prescription drugs: 

President Donald Trump reportedly plans to sign an executive order setting up an International Pricing Index for certain prescription drugs—an idea he, along with most Democrats, has supported for some time. 

So let’s be very clear about what an International Pricing Index is: it is price controls. 

It is perplexing why the president, who opposes socialized health care, would choose to let nations with a socialized health care system determine the prices for U.S. drugs. By indexing U.S. drug prices to those of nations with government-run health care systems, he is essentially embracing their socialized system. 

The question the Trump administration should be asking during a pandemic—where people’s lives and countries’ economies depend on drug companies quickly finding a successful vaccine and treatment for Covid-19—is whether under a price-controlled system drug companies would have had the capital to invest in finding a solution while Congress was dithering? 

An International Pricing Index sets the U.S. prescription drug price based on some type of composite index of prices charged in several other developed economies, which merely imposes on U.S. drugs the largely arbitrary drug prices set by politicians and bureaucrats in other countries.

Even worse, the reported new “most favored nation” provision would insist that U.S. drug prices be LOWER than those of the price-indexed nations. So the Trump administration wants to go socialized drug prices one better.

Why does the Trump administration think that price controls set by foreign governments are any more appropriate than price controls set by U.S. officials?

Government-imposed price controls—whether it’s prescription drugs, housing, education or food—are politically determined, and subject to the prevailing social and political forces.

Perhaps creating a pricing index is a way to avoid political accountability. If we import price controls, politicians can simply blame other countries when shortages and rationing emerge—and such shortages will emerge.

Those who invest their money in the search for new drugs, whether it’s existing drug companies or venture capitalists, are hoping for a reasonable return. If politicians, rather than the market, are determining prices and imposing price controls, venture capital will dramatically decline or vanish.

And it is particularly strange that the president wants to import the socialized price controls of other countries at this moment, when the strength of the innovative biopharma industry has never been more clear.

In the face of the Covid-19 pandemic, there was no need for the federal government to undertake a “Manhattan Project” for a Covid-19 vaccine, because the U.S. biopharmaceutical industry is strong, healthy, and was able to move quickly to begin research and development and testing of potential vaccines. Our biopharmaceutical industry was healthy and confident in its ability to invest and take risks toward treatments for Covid-19 precisely because of our existing innovation and pricing system.

That ability to invest and innovate quickly may be why both Russia and China, both with government-run health care systems, have been trying to hack into our vaccine-development data.

Venture capital has been critical to drug companies quickly ramping up efforts to find a Covid-19 vaccine and treatment. An International Pricing Index will almost certainly mean that if and when the next pandemic strikes, drug companies will have to wait on Congress to appropriate the research-and-development funds, costing time—and lives. 

It is ironic, and tragic, that at this moment the Trump administration risks overturning our pharmaceutical innovation system. “First, do no harm” has perhaps never been more important for the health of the American people and of the U.S. economy. 

We urge the Trump administration to forbear importing the price controls of socialist health care systems to the U.S. There are other ways to improve the payment system for prescription drugs. The Institute for Policy Innovation has suggested several such policies in the past, and we would be delighted to work with the Trump administration to find more market-friendly ways to make prescription drugs more affordable without endangering the biopharma innovation system.