Democrats have proposed an economic stimulus package that takes us one step closer to a system in which price controls determine innovation. The key provision is $1.1 billion going to the federal Agency for Healthcare Quality and Research for so-called “comparative effectiveness research,” or CER.
Ostensibly, comparative effectiveness research is an effort to compare two or more prescription drugs to find out which ones are most effective with the fewest side effects.
But there is a dirty little secret to CER when it comes to prescription drugs. When the government sets up a process to do the research, there may be an ulterior motive: to save money, even at the expense of patient health and satisfaction.
Assume, for example, that Drug A is the best selling drug in the world for treating a specific medical problem. Drug B, by contrast, treats the same condition but isn’t nearly as effective for most people. And as a result, the maker of Drug B is willing to dramatically reduce the drug’s price — a perfectly rational economic decision to increase market share.
But creating an unelected government committee—the proposed legislation calls for the 15 committee members to be federal employees—allows committee members, not the marketplace, to decide which drugs will be the “winner.”
There will be significant pressure on the agency, especially in tight-budget times, to choose the cheapest drug rather than the best drug. And because the government is one of the biggest purchasers of prescription drugs, its decisions will set the prices and priorities that will become the benchmark for the whole U.S. health care system.
When a federal agency determines which drugs are the most cost effective, some patients will be denied the drugs they and their doctors think they need.
You can also expect the innovator drug manufacturers to begin to apply certain cost criteria to their new-drug development process. If, for example, a drug manufacturer thinks the government won’t approve more than, say, a dollar a pill, then drug manufacturers will pull the plug on research for any drugs that will cost more than a dollar to invent and produce. In other words, price controls determine innovation.