Our government does not know how to negotiate prescription drug prices

OPINION:

Under the auspices of lowering the cost of prescription drugs for older Americans, the Biden administration is considering a plan to impose a drug tax that will raise prices. Only in Washington could a law that purports to lower drug prices do the opposite. In Washington, unfortunately, imposing high taxes is the easy way to force compliance with government orders and mandates — at the expense of older adults and others with high drug costs.

The idea of the government negotiating drug prices with drug companies on behalf of the Medicare Part D program seemed like a reasonable provision. This was an idea that was marketed to the American people by Democrats and some Republicans. Negotiating drug prices polled popular, and politicians promoted it on the campaign trail.

Now, we are learning that the policy is terrible in practice because the government does not know how to negotiate in good faith.

Right now, the government wants to establish a drug price and bully drug manufacturers into accepting that price as a ceiling. If the company does not comply, the government will impose massive new taxes on consumers to punish the drug company while kicking the drug out of Medicare Part D coverage. That type of negotiation makes no sense.

When Congress passed the Inflation Reduction Act last year, supporters of negotiating prices with pharmaceutical manufacturers added a provision empowering the Department of Health and Human Services to negotiate the prices of no less than 60 drugs.

Ryan Ellis at National Review wrote on Sept. 20 that after drugs are identified as the subject of negotiation, a price will be set by the government and “if a company does not accept the price control imposed on the drug, it will be forced to charge a 95% excise tax on the sale of that medicine (on everyone who buys it, not just seniors).”

The drug companies are given a choice to either accept the mandated government-set price or to pass on to consumers a massive excise tax, which escalates over time to 95% on the very people who are supposed to benefit.

The “Biden drug tax” is in the early stages of imposition on Americans, so there is time to shine a light on this issue. The IRS put out the initial plan, setting an escalating tax rate that increases over time and reporting requirements and how the tax will be paid.

The administration will try to sell the tax, which rises to an 95% excise tax over time, as a fee or a penalty on drug manufacturers, yet it is no different than an excise tax on beer, liquor, airline tickets or gasoline, with one exception — those taxes are minimal by comparison.

An excise tax is a hidden tax collected by the seller on behalf of the government. Consumers aren’t necessarily even aware of the tax when they buy a particular good or service.

Think about the gas tax that is collected by oil companies yet assessed on every American when they pump fuel. In a similar situation, drug companies will end up collecting the tax for the government, and older adults will see a price increase when they go to pick up their prescriptions.

In addition, these drugs will not be covered by Medicare Part D. The Congressional Budget Office estimated that the increased revenue for the federal government over the next 10 years is $101.8 billion. That revenue estimate is heavily reliant on the IRS’ plan to collect a new tax on older Americans.

Think about the dangerous precedent for wage and price controls that this law sets. If a car dealer refuses to sell electric cars, then the federal government could use this precedent to use taxing authority to force compliance. In the end, the consumer is hurt by either electric car rationing thanks to lower than market-based prices if the car manufacturers agree to the mandated price or an increased price per vehicle thanks to a massive tax per car that will price out many Americans.

Increased government control over the economy is not going to produce the intended policy outcome anyway.

The same is true for drugs. Government price controls result in less incentive to produce new drugs and rationing of those drugs. If the government price control is not agreed to, then expect the price of these already expensive drugs to skyrocket in a way that will price out older Americans with dwindling resources.

This drug tax seems like a lose-lose proposition for all consumers who rely on prescription drugs.

• Brian Darling is former counsel to Sen. Rand Paul, Kentucky Republican.