Health

Free Market Will Reduce Cost of Health Care

Nearly everyone agrees that health care prices are too high, but many offer solutions that would only push costs higher for working families.

Congressional Democrats, spearheaded by Rep. Nancy Pelosi (Calif.) and Sen. Chuck Schumer (N.Y.), attempted to create a drug price “enforcer” earlier this year to curb rising pharmaceutical prices. Their approach is exactly the heavy-handed government effort that has stifled pharmaceutical innovation and killed competition. Instead of embracing the heavy-handed “solutions” proposed by Pelosi and Schumer, lawmakers need to embrace tax-free savings accounts, nix insurer mandates and allow pharmaceutical companies to innovate in order to bring down costs.

Pharmaceutical companies manufacture drugs that help people, but they also need to turn a profit in order to fund new and ongoing research for breakthrough, critical medicine. This is often difficult, given the high development and regulatory costs imposed on drug manufacturers. A 2017 study appearing in the Journal of the American Medical Association estimates that the average cost to bring a drug to market is $648 million and takes more than seven years, largely due to an onerous Food and Drug Administration approval process that doesn’t even ensure safety. This government interference undermines the innovation cycle created by market competition and hurts all patients.

Nowhere is the affordability fight in medicine clearer than in the fight to make cardiovascular disease treatments accessible to more Americans. According to the Centers for Disease Control and Prevention, someone in America has a heart attack every 40 seconds, resulting in more than 2 million hospitalizations per year. With more than 630,000 Americans dying yearly from heart attacks and strokes, cardiovascular disease disproportionately affects lower-income Americans and is the leading cause of death for people of most ethnicities in the United States.

Amgen, the maker of Repatha, a drug used to reduce the risk of heart attack or stroke in adults with heart disease or as a treatment to lower cholesterol, recently cut the price of its drug by 60 percent without legislation dictating it do so. Current and prospective patients could save between $200 and $300 per prescription, depending on the patient’s health plan.

Insurers base patients’ medicine copays on a drug’s listed price, which means if a drug costs more, a patient will have a higher out-of-pocket expense. One feasible way to reduce prices and overall medical cost and increase accessibility and affordability is for companies that manufacture drugs to slash their prices.

Statistics from the CDC Foundation state that by 2030, “annual direct medical costs associated with cardiovascular disease are projected to rise to more than $818 billion,” up from $600 billion today, “while lost productivity costs could exceed $275 billion.” Additionally, the foundation also clarified that despite the misconception, cardiovascular disease is largely preventable. Studies show that cardiovascular disease medication reduced the risk of heart attack by 27 percent and stroke by 21 percent.

With medication proven to reduce the risk of heart attack and competition to spur lower prices, medicine can become affordable and accessible to millions of Americans. Now health insurers need to incorporate new pricing into their plans to pass the savings on to consumers.

Amgen serves as one example of how market forces can lead to gains for consumers and companies alike. But trying to set the price too low via government “negotiation” is tantamount to price controls, since the federal government is the largest buyer of many medications.

According to the Congressional Budget Office, attempts to have Medicare negotiate drug prices would only have “negligible” savings. Why? According to Juliette Cubanski  of the Kaiser Family Foundation, private insurers have already negotiated down prices a great deal, and additional government efforts would do little to add onto that. But fewer insurer mandates and less government-imposed rigidity can ensure that consumers are empowered to do some of the negotiating, which would likely lower prices even further.

The free market leads to tangible savings across many sectors, and there’s no reason why that can’t be the case for health care, too. Rather than pushing for feel-good yet meaningless legislation such as Pelosi and Schumer’s price enforcer, congressional leaders should create an atmosphere ripe for competition.

 

Ross Marchand is the director of policy for Taxpayers Protection Alliance and an alumnus of the Mercatus Center MA Fellowship at George Mason University, and he has interned for the Texas Public Policy Foundation and the American Legislative Exchange Council, analyzing and blogging on a variety of public policy issues ranging from higher education to fiscal policy.

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