There seems to be a renewed push for the United States to copy the socialist health care model of Europe with regard to health care pricing. Importing socialism from nations like Germany would be a mistake because it will destroy the market forces that have made the United States the economic and innovation leader of the world. With all the flaws we have in the American health care system, more government interference will not make things better – it will make the system worse.
Two troubling signs have emerged that liberal-leaning Trump Administration officials are trying to get President Donald J. Trump to issue an executive order imposing the International Price Index (IPI) in health care. The Hill reported on July 21, 2020, “The White House is considering one or more executive orders aimed at lowering drug prices that could come as soon as this week” and “one idea under discussion, sources say, is to link some U.S. drug prices to the lower prices paid overseas, an idea that is opposed by many Republicans, who see it as a price control that violates free-market principles.” In January of this year, a coalition of 52 right-leaning organizations sent a letter to Department of Health and Human Services (HHS) Secretary Alex Azar arguing “conservatives have long opposed price controls because they utilize government power to forcefully lower costs in a way that distorts the economically efficient behavior and natural incentives created by the free market.” Price controls under the guise of indexing would get away from the market-based approach and would impose socialism in drug pricing.
Opposition to this horrible idea on the right is strong. Adam Brandon of FreedomWorks argued in Real Clear Markets, “last year, some supposedly conservative lawmakers” endorsed “price controls on prescription drugs” and “this proposal, known as the international price index (IPI), would tie the prices of Medicare drugs in the U.S. to prices in a select set of foreign nations.” Brandon describes the process as “certain Medicare drugs would have been tied to a basket of foreign nations, with the ‘proper’ price being formulated based on the prices in those nations.” He correctly describes this as “central planning on steroids,” because the U.S would have stringent price controls. There is no way to spin this as a good idea.
Politico reported on a new study from Health Affairs pointing to Germany as a model for socialist price controls on drug prices. As reported, the study used “data on 57 cancer drugs launched in Germany from 2002 to 2017, the Harvard researchers found that a 2011 German law to allow for drug price negotiations was associated with aligning prices more closely with clinical benefit, Zachary writes.” Prices went down by 24.5% relative to the initial launch prices. The idea of the “clinical benefit” of drugs is wholly arbitrary because it relies on opinions, not any market-based pricing structure.
The United States is not going to copy the German model of a top-down approach to setting prices. The German health care model is government-run socialism and using the German model for drug prices might lead the U.S. down the path of socialized medicine if Republicans don’t get smart on this. It should not surprise anyone that German patients, because of their system, don’t have access to important treatments and new drugs, because government bureaucrats have made bad decisions for consumers. It should not be a surprise that the German government appointed price-fixing organizations that make determinations on what drugs benefit and what drugs don’t get it wrong with new treatments and German consumers pay with limited access to life-saving drugs.
The bottom line is that the Trump Administration should not be adopting socialism and European style price controls because that will hurt patient access, doctor-patient determinations on drug choice, and give too much power to government bureaucrats. Implementing the International Price Index in Medicare is a first step towards the dream of Rep. Alexandria Ocasio-Cortez and her squad to implement a 100% socialist health care system for all Americans.