Democratic presidential candidate Hillary Clinton announced her plan to control prescription drug prices last week and the stock market’s biotechnology sector immediately tanked, quickly followed by the health sector.
In one fell swoop she managed to wipe out billions of dollars in capital as investors fled those industries—and she doesn’t even have the Democratic nomination yet, much less the White House.
Clinton’s plan followed Turing Pharmaceuticals announcement that the company would raise the price of Daraprim from $13.50 to $750 a tablet.
Turing’s price increase has been widely criticized as excessive and led to multiple calls for an end to market pricing in pharmaceuticals, and health care in general—with Clinton leading that charge.
But one can be a strong defender of free market pricing as the best and most efficient mechanism without necessarily agreeing with—and perhaps occasionally deploring—every action a company takes, just as one can strongly defend the trial-by-jury system without endorsing every decision individual juries make.
The economic lunacy in Clinton’s plan is she thinks she can simultaneously impose price controls and increase competition.
According to her website,
Her plan will demand a stop to excessive profiteering and marketing by denying tax breaks for direct-to-consumer advertising and demanding that drug companies invest in R&D in exchange for taxpayer support—rather than marketing or excessive profits. She will encourage competition to get more generics on the market and create a Federal backstop for when there are excessively high-priced drugs that face no competition.
By imposing some form of price controls on drugs and by limiting data exclusivity from 12 to seven years, Clinton would reduce competition, not encourage it.
Those drugs that cannot get the return to pay for themselves under the government-imposed price or the time allotted will be dropped from the research pipeline. It’s that simple.
Ironically, if Clinton really wanted to lower prices, she would drop price control threats and make it clear that pharmaceutical companies would be allowed to innovate and charge what they needed to under a Clinton White House.
As companies raced to develop new drugs, many of which would compete with existing products, manufacturers would be forced to keep prices lower in order to gain market share.
Excessive profits will not stand long in a free and open economy. Companies, competing for a share of those excessive profits, will drive prices down. Clinton’s government-heavy plan will only drive prices up.