Published: May 13, 2008 04:42 pm            

McCain gets it wrong on drug importation

John McCain claims that the "biggest problem with the American health care system is that it costs too much" -- and that the solution lies in leveraging the power of free markets. "Problems with costs are created when market forces are replaced by government regulated prices."

On the surface, it sounds like Sen. McCain has embraced free-market solutions to healthcare reform. But a closer look at his actual policy position shows that this isn't the case.

Sen. McCain has cosponsored a bill that would impose foreign price controls on U.S. companies. There's absolutely nothing "free market" about that.

Specifically, there's a section of the legislation called the "forced sale" provision, which would require U.S. drug producers to sell to international exporters at prices set by foreign governments. Many have criticized this legislation because it would essentially import foreign price controls.

In a recent interview with ABC's George Stephanopoulos, Sen. McCain was asked about his support for this policy. Mr. Stephanopoulos directly pointed to the argument that importing drugs from Canada could result in "importing their price controls."

Sen. McCain's response? "If it's less expensive . . . and we know it's safe and available, I'm all for it."

Unfortunately, the legislation he has co-sponsored would ultimately make drugs more expensive -- not less.

Like so many politicians before him, Sen. McCain has fallen for the siren song of price controls -- entranced by the idea that prices can simply be lowered by government fiat. But not even the U.S. Senate can repeal the laws of economics.

Time and again, history has shown that price controls hurt the same people they were intended to help. Shortages emerge, black markets develop, quality declines -- and, alas, prices actually rise. Invariably, the government ends up intervening over and over again to "fix" the very problems it created. The end result is a quagmire of red-tape that stifles all innovation.

These consequences shouldn't surprise anyone with an understanding of basic economics. If the government mandates a below-market price, then demand will rise and supply will shrink. Normally, when demand rises and supply shrinks, prices go up. But if the government prevents that from happening, then the supply eventually disappears.

In the case of life-saving drugs, a decrease in supply would have devastating consequences.

Do you know anyone living with AIDS, cancer or heart disease? Countless people are alive today because of the pharmaceutical industry's ability to develop new cures.

These drugs are used treat a litany of diseases that affect people around the globe, but they're hardly free. Because of all the research and testing involved, it costs nearly $1 billion to bring a new drug to market. And that requires an enormous investment of capital.

If Sen. McCain imposes price controls on drug companies, these same firms would lose their ability to raise capital, to pay scientists, to research new cures. The toll in suffering would be immeasurable, literally. After all, who knows how many lives would be lost on account of cures that were never invented?

On top of that, imposing price controls on drugs is not the solution to the problem of spiraling healthcare costs. Unlike prices in the medical industry overall, drug prices have risen by just 1 percent over the past year. That's well under the rate of inflation.

Sen. McCain says that "if there are ways to bring greater competition to our drug markets by safe re-importation of drugs . . . we should do so." But his actions don't match his rhetoric. Price controls don't enhance competition; they stifle it.



Lawrence A. Hunter, Ph.D. is the former staff director of the congressional joint economic committee and is a consultant to the pharmaceutical industry.

        

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