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John McClaughry: Return of the Curse of Diocletian

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This commentary is from John McClaughry, Vice President of the Ethan Allen Institute.

President Joe Biden has signed into law the Schumer-Manchin “Cutting Inflation” Bill. Among its many provisions is the long-sought authorization (by Democrats) for the federal government to “negotiate prices” for pharmaceuticals purchased through Medicare.

The bill requires the Secretary of Health and Human Services to “negotiate” prices for 10 of Medicare’s highest-spending drugs starting next year and 20 by the end of the decade. If drug manufacturers did not accept the price offered by the government, they would face a 95% excise tax on their sales.

As Kim Strassel of the Wall Street Journal writes, “It’s not a ‘negotiation’; it’s a gun to the head. The correct term is “price control”.

The indisputable fact is that government-imposed price controls on any product trigger a long chain of consequences, predictable by historians and economists. The unfortunate results of government price controls are known, at least to some critics, as “the curse of Diocletian.”

Diocletian was Emperor of Rome from 284 to 305 AD. Previous emperors had seriously degraded the value of silver coinage. Diocletian, needing money to pay the legions and build grandiose public works, starts again.

He scrapped the old coinage and introduced a new copper coinage which soon became virtually nil. The prices of goods and services in the new currency soared. So Diocletian issued an edict declaring the binding value of virtually any commodity or service traded in terms of his worthless currency. It forbade buyers and sellers to decide for themselves the price to pay for wool, wheat, herdsmen and farriers. He said anyone caught refusing to accept controlled prices for goods and services would be put to death.

Unsurprisingly, the result was market riots, murder of traders, hoarding, shortages, unemployment, hunger and, despite the death penalty, a rapidly growing black market. After four tumultuous years, the price control system has collapsed. Diocletian became the first Roman emperor forced to abdicate.

Today, pharmaceutical pricing is an almost impenetrable jungle of discounts, rebates, copays, special offers and the like. What we do know is that Medicare prescription drug price controls will drive down the prices of affected drugs – but they will raise drug prices in the broader uncontrolled private sector market, raise premium costs for health insurance and depress the industry. investment in new life-saving drugs.

The Wall Street Journal also reported that “Progressives are disappointed with the tentative drug price deal that Senate Majority Leader Chuck Schumer appears to have reached with Joe Manchin of West Virginia. But don’t worry, says (outgoing) Vermont Rep. Peter Welch, price controls are just the start of what will be a long raid on drugmakers to fund Democrats’ spending ambitions.

In short, this long raid on the drugmakers will make the pharmaceutical industry completely dependent on the government for its viability, let alone shareholder returns. There is a name for such an economic system, where the government dictates the products that an industry must produce and sets the prices that the industry can charge for its products. This is not socialism, where the government owns industry. It’s fascism.

Is there a better way for patients to obtain pharmaceuticals at a lower cost? Patients should purchase the best drug prices themselves and pay for them directly from their tax-free health savings accounts, subsidized for low-income families. Two online vendors are GoodRx and Mark Cuban’s Cost Plus Drugs, which offer most prescription drugs at 15% above the manufacturer’s cost.

Patients can enroll in Direct Primary Care, such as Atlas MD based in Wichita, Kansas. AtlasMD offers 24/7 primary care for the most common medical issues via phone, email, Skype, Zoom and Facebook. Patients must purchase low-cost, high-deductible health insurance to cover serious medical conditions, but AtlasMD arranges specialist appointments, provides medications (from GoodRx), and arranges tests and MRIs at discounted prices . AtlasMD charges $50 per month for a mother and $10 for a child.

Another alternative is to join a community health plan or faith-based healthcare cost-sharing society. Prescriptions can be filled and imported from countries like Canada and Ireland for personal use at far lower prices than the same drugs sold in the US (because US patients here bear the huge cost of approval of the FDA).

Congress needs to help by allowing seniors to contribute to health savings accounts. Other needed reforms are rewriting complex medical patent laws to weed out ingenious abuses, freeing generic drugmakers from unreasonable hurdles, and abandoning the 1962 “effectiveness” requirement that inflated patents. costs to get FDA approval for a new drug, which now costs more than $2 billion. .

Diocletian is long gone, and the lingering curse of his price controls must be similarly buried.

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Tags: inflation, Inflation Reduction Act

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