The populism that is coursing through the veins of Republicans in Congress right now is frightening. It is like the Hulk breaking out of Dr. Banner: It is unstoppable and yet also destructive. In just a short couple of months, they have shunned free-market ideals that many free-market conservatives have worked years on educating members, staff, and the public on and embraced big government command and control. From big tech to drug prices, the more they can display these feats of big government strength the more eager they are to flex their newfound big government muscles.
And that doesn’t seem to be stopping anytime soon.
Earlier this month, a new attack on the pharmaceutical industry was introduced in the Senate, S.1416. In other years, Congress might have pursued real solutions to high drug prices in the form of bills that leverage free-market principles. But in this era of populism, the bill employs big government policies to tell pharmaceutical companies what products will be considered new. In the 26-page bill, the decision is left to 28-year-old bureaucrats to decide if an advancement is significant or not.
The bill’s intent is to bring down drug prices by attempting to allow more generics. But like most pieces of legislation (or any work product that is produced by people that have little understanding), it misses the mark and instead will likely just leave us all facing more diarrhea or other side effects that might not be considered “significant” by some ill-informed bureaucrat.
The primary misunderstanding of the innovation system is that there is a way to extend a patent. The genius of the patent system is that there is an end. For instance, if a company invented a drug to cure cancer and patented it, at the end of that patent, anyone can produce that drug. However, maybe during that time it is found out that while it cured cancer, everyone also develops non-life-threatening diarrhea. If they then file a patent on a new version that doesn’t cause stomach issues, currently they could produce that new version, and generics could produce the diarrhea-inducing version. The new bill, S.1416, discourages the creation of the new unflawed version.
I guess that makes S.1416 a diarrhea-inducing bill — maybe it should be listed as a side effect of the legislation.
The right people to make decisions about what drug should be prescribed aren’t a bureaucrat and an economist; the right people to make the decisions about what drug to take are the patient and the doctor. They benefit by having more choices rather than less. The real shame in the introduction of this bill, other than circumventing the doctor-patient relationship, is that it attacks the patents system and employs more market-stifling regulation instead of seeking to use less, which means less choices for doctors to choose from.
There is a lot of room for real free-market improvements in the pharmaceutical industry without adding more bureaucracy. For instance, President Trump is attempting to fix the way that rebates for prescription drugs are handled. This alone could help significantly bring down the costs of some of the highest-priced drugs on the market. The way that this works can get a bit complicated but from a recent American Action Forum Study:
Therefore, the current “rebate” system benefits the healthy over the sick, which is the exact opposite way that a healthcare market should function. At least starting to fix this system is healthy free-market reform that helps restore normal market features (pricing signals) and also helps make some of the most expensive drugs more affordable for the people that need them.
Under the current era of populism, this type of common-sense reform faces more hurdles than it would have in the past, but structuring an insurance system that helps the sick and high-cost users instead of penalizing them is good policy.
It is easy for the politicians to fall back on populist solutions; it makes them feel powerful like the Hulk. But the side effect is that it can also be aggressively destructive.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.
