Beware the Post-Midterm Price Control Creep

NATIONAL REVIEW

Storm clouds are gathering for Republicans ahead of next month’s midterm elections. If the forecast holds, a divided government could leave Washington gridlocked for two years. Yet one policy idea being floated on Capitol Hill may find support from both congressional Democrats and the White House during the stalemate. For those who favor limited government and competitive markets, the prospect is unnerving.

In 2022, President Joe Biden and his allies in Congress passed the Inflation Reduction Act, sprawling legislation that established a government price control scheme. The law requires that drugmakers “negotiate” prices with the feds for some medications covered by Medicare. “Negotiate” is a buzzword used to avoid the stink of government coercion. But in reality, “strong-arm” fits better.

If companies don’t agree with the price set by Uncle Sam, products get slapped with a tax of up to 95 percent. To borrow a line from The Godfather, the government makes an offer drugmakers can’t refuse.

The goal is to save the government money by forcing companies to sell products at below-market rates. But distorting market signals has consequences — and in this case, that’s a chilling effect on the development of new medicines. Bringing a new drug to market can cost upwards of $2 billion. If the likelihood of recouping that investment shrinks, so too does the motivation to innovate. If the government compelled John Deere to sell tractors at a steep discount, would the company still have an incentive to develop new models?

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