The Democrats who now control Congress want to change President Bush's Medicare drug benefit to require government officials to negotiate drug prices with the pharmaceutical companies. Under the current program, competing insurance companies cut the deals and offer coverage to the retired and disabled.
Yet another lesson in the well-established principle: Government intervention begets more government intervention.
When Bush signed this program into law, it was the biggest expansion of the welfare state since Lyndon Johnson's Great Society. As with all "entitlement" programs, the costs will explode. Tax-financed health programs are always more expensive than promised.
Rep. John Dingell, D-Mich., defends the drug-negotiation proposal, saying, "It will deliver lower prices to seniors, lower prices at the pharmacy and savings for all taxpayers."
At first glance the idea makes sense. Instead of multiple companies competing to negotiate drug prices, have one big powerful entity do the negotiating. Wouldn't that lead to lower prices?
It might -- and that's part of the problem. We should be suspicious when someone promises benefits from a government monopoly. Government doesn't produce things. It simply uses force to move things around. So why think that Medicare, hardly a paragon of efficiency, should be given the power to negotiate -- in reality,control -- prices?
Government's clout to negotiate lower drug prices supposedly comes from Medicare's 43 million beneficiaries. According to the theory, drug companies will have little choice but to submit to the government's demands because having their products excluded from the program would be self-destructive.
But there are problems with that theory. First, the government doesn't know what the "right" price is. In the real world, prices are set by supply and demand. Government is not part of the marketplace and would have no competitors. Its attitude would be "take it or leave it."
The story won't have a happy ending. A lot of money is needed to develop medicines. Getting a new drug through the FDA labyrinth to consumers takes $1 billion. Most drugs in the research pipeline never even get that far. It's a failure-intensive business.
The occasional success makes it all worthwhile.
So when the government uses its muscle to force prices to sub-market levels, the drug companies will develop fewer life-saving drugs. We will suffer more pain and live shorter lives.
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