The White House is declaring war on prescription drug prices. “The administration is deeply concerned with the rapidly growing prices of specialty and brand name drugs,” noted President Obama’s 2016 budget proposal. To keep prices down, the president wants the government to negotiate prices for drugs dispensed through Medicare.
But that “solution” derives from two false premises. First, that the federal government can get better deals than the private sector. And second, that it “negotiates” at all.
Let’s consider the second premise first. Governments don’t negotiate prices—they dictate them. Federal, state, and local governments already cover about half of all health care costs. Government can effectively name the price it will pay. If drug companies don’t like the price—or if that price would cause them to lose money—tough luck.
In other words, government “negotiations” amount to de facto price controls.
