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Are Democrats serious about fixing what's broken in the nation’s health care system? Obamacare, which was supposed to be the be all and end all of reform, ending up making lots of Americans buy insurance they frequently didn’t have the disposable income to use because they couldn’t pay the high deductibles.

To Nancy Pelosi and her ilk, that was a victory. She and her allies clearly don’t have their priorities straight. Instead of pushing for a patent-affordable, provider-provider-friendly system in partnership with the health insurance companies, they continue to push for a one size fits all system that doesn’t use market forces to bend the cost curve downward. 

Their latest proposal, Medicare-for-All gets it first hearing in May. It’s a multi-trillion-dollar abomination that will upend the system even further. It lets Washington make more decision about health care than it does now, takes away from what remaining freedom doctors have to order what they consider appropriate care for their patients, and busts the federal budget. 

That’s on the top level. Further down the chain, amongst the individual policies that make up what Medicare can and can’t do is another Pelosi-backed proposal that could wreck the U.S. pharmaceutical industry, something that would have dire implications for the future of American patient care and medical innovation. To lower the amount the government spending on drugs, Pelosi’s pushing for a process that would allow government-appointed arbitrators to unilaterally set the price of medicines and therapies. 

It sounds benign. Binding arbitration is a term familiar to many Americans who, by and large, consider it a generally fair way to resolve conflicts between interested parties. 

It works in the private sector because the arbitrator is a disinterested party. Under the Pelosi plan, they work for the government which – it needs to be said – has a vested interest in the outcome. That makes what she envisions a pathway to government-imposed price controls.

Under the system currently, prices are set through negotiations between drug companies, private insurers, and healthcare providers. Under her plan, when a dispute arises these supposedly independent arbitrators would be empowered to set prices, probably well below fair-market value under almost any interpretation, because the government bureaucrats who appointed them would apply pressure, however tacit, to bend the cost curve downward.

That’s not good for medical innovation. Life saving drugs are often expensive to develop and test and bring to market. It costs almost $3 billion and takes more than a decade to bring a drug from the lab to pharmacy shelves.  Around nine in 10 drugs won't even make it that far, dying in clinical trials instead.

Companies must recoup costs, not just for what works but for what doesn’t in order to stay in business. The stockholders and corporate managers who bring this all about deserve the financial rewards available to them when their risk-taking pays off because it improves the quality of life for us all. 

The government-appointed arbiters don’t have to worry about any of that and there’s no way to make them. Under the Pelosi proposal, Medicare officials dissatisfied with negotiated prices could ask arbitrators to intervene. Each side of the transaction would be given a chance to justify the price they’re seeking and then the arbitrator would choose a price. Everyone involved would be legally bound to accept the decision, even if it fell outside the range of what either party had put on the table.

That tosses a monkey wrench into the risk/reward calculations investors routinely make, even when a single successful drug has huge potential. Companies will be less willing to roll the dice on developing a new drug if they know the government will underpay for medicines.

Just look to Europe to see this idea doesn’t work. In the 1970s, Europe was the course for half the world’s medicine. Throughout the decade though, European governments ratcheted up price controls so by the 1980s drug development on the continent plummeted. 

Today, less than a third of new drugs come from there. Meanwhile, the United States has led the world in drug development for over 30 years. Innovators flock to our market, which values new drugs fairly. The U.S. biopharmaceutical industry invested nearly $90 billion in R&D in 2016 alone. American companies are currently developing 4,000 new treatments. Among them could be a new cure for cancer, Alzheimer's, or diabetes. That's welcome news for America's most vulnerable patients -- particularly the 190 million people living with at least one chronic condition. 

All of that is put at risk by the Pelosi proposal. If her vision of “binding arbitration” becomes law, these treatments may never see the light of day. Which makes her plan worse than the disease she proposes to cure with. 

Peter Roff is a senior fellow at Frontiers of Freedom and a former U.S. News and World Report contributing editor who appears regularly as a commentator on the One America News network.

 

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