Rick Amato: Pelosi's New Leftist Healthcare Plan Must Be Stopped

By Rick Amato:

The socialist price controls bill introduced last week by Nancy Pelosi would deeply harm medical innovation, create shortages, lead to rationing, and create incentives for black markets – all of which hallmarks of disastrous price control policies that have failed in every area they've been tried.

The Democrat speaker, known for famously saying we need to pass Obamacare so we can find out what’s in it, spent months crafting her bill in secret, to the point that her own fellow Democrats expressed deep frustration with their inability to glean details about what the bill entails.

In the AOC era, Pelosi has her hands full keeping a new generation of avowed socialists – who fault Pelosi for being too far to the right – at bay. As a result, her new drug bill is to the left of even Obamacare. It is a potpourri of all of the worst ideas about how to lower drug prices, strategically weaponized by Pelosi to move the country the furthest to the left possible.

New drugs are expensive to invent – roughly $3 billion each. The research and development process is long and expensive. Most ideas fail. And the window of profitability, when patents are still in effect, is limited. At the end of all this, when patent exclusivity expires, the public gets access to the drug for as cheaply as it can be manufactured for the rest of time.

With technology offering so much promise, we should be working to facilitate more research and development into new medicines that could solve many of the most pernicious and intractable health problems that man has not yet conquered, not slaying the golden goose in a foolish and greedy effort to make Medicare affordable for a few more years.

Pelosi's bill would essentially end the drug industry as we know it, putting the world's most significant, relatively free drug market firmly under the thumb of price controls.

For instance, Pelosi modifies existing proposals to set Medicare reimbursement rates by averaging the price control rates paid by European socialist single-payer states and applies the idea to prices paid by the private insurer market as well.

Pelosi's particular twist on international socialist price control index idea relies on the "prices" from Australia, Canada, France, Germany, Japan and the UK –  all nations with socialist health care systems fully administered by the governments.

Incidentally, things are not always so rosy when it comes to the care received by citizens of those countries.

The UK is particularly ruthless about deciding treatments aren't worth paying for. Take, for instance, the case of children born with cystic fibrosis. Years after a groundbreaking new drug came to market, the UK government was refusing to pay for it, prompting desperate parents to move to other nations where coverage for lifesaving medicine was available.

In Canada, there is a burgeoning new career for "drug navigators" – advisers who help Canadians try to figure out access to the cancer drugs their government doesn't want to pay for.

However, there is one provision in Pelosi's bill that is brand new, and that is the idea of forcing drug companies into accepting the prices the government decides it wants to pay by annihilating them with taxation if they don’t comply.

Under her bill, drug companies that decline to participate in the new price-setting regime will soon face a tax of 95% of the revenues from the drugs they sell. For perspective, the taxes on cigarettes, including state taxes, are about 40% of the price, for a product that's been known to be deadly for 50 years.

Throughout history, price controls have been tried in many different places and times and on many different types of products. The result is always the same: shortages, followed quickly by rationing.

The core reason is that price controls reduce the incentive to produce the good they seek to make cheaper to obtain. Rationing is just another means of paying, with time instead of money, but an inferior one since it does nothing to offset the underlying shortage it is addressing.

Those concerned about the prices of drugs should work to facilitate a more streamlined regulatory regime that allows companies to bring medicines to market for less than $3 billion a drug.

Taxing something results in less of that thing. Regulating it makes it more expensive to produce. The goal is more drugs, and cheaper drugs, but the remedies proposed by Pelosi and others would move us in precisely the opposite direction.

Republicans should oppose Pelosi's bill vociferously and ensure it never becomes anything more than a left-wing pipe dream. The future of medical innovation depends on it.

Rick Amato, is a former financial adviser for Merrill Lynch and founded the Amato Wealth Management Group. He is currently the host of Politics And Profits with Rick Amato, and co-hosts Jobenomics America TV. Find out more at amatotalk.com.