The Manchin Proposal Would Ruin the Medication Business and Hike Prices

You’ll look back on this period five years from now and say Democrats are responsible for destroying generic drug manufacturing. 

As a better alternative, the United States should raise hell this week by contacting Democratic members of the House and urging them to vote against the “negotiation” clause in the Manchin-Schumer tax-and-spend package.

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On multiple levels, the Medicare clause is profoundly unproductive. The measures it will take to discourage the creation of inexpensive generic pharmaceuticals will have a significant impact on family budgets. 

Monopolies and Expenses

To comprehend why and how the policy would impede progress, it is sufficient to grasp how free markets function.

In practically every business, research and development expenditures necessitate that prices for innovative new items be expensive; otherwise, there wouldn’t be any way to repay the original cost.

After patents lapse, or if a competitor can manufacture a comparable product without infringing the patent, early competitors can make a profit by marginally lowering the original’s high prices.

Even so, the competitor’s early investment expenses may be substantial. 

Ultimately, though, the emerging product’s market expands as its effectiveness becomes apparent. As the market expands, additional manufacturers can enter the industry and charge even lower rates, as they can compensate for poor per-unit margins by selling more units.

Consider how the prices of computers and, later, cell phones have decreased over the years.

Even while demand increased, the number of available suppliers also increased. There was rivalry for market share to deliver ever-more-efficient devices at the lowest feasible price. 

This is especially true for the creation of life-saving medications. Individual medication research, government-mandated research, and manufacturing expenses can reach several hundred million dollars or more.

If government can “negotiate” or compel reduced costs for important pharmaceuticals through Medicare, as the Manchin-Schumer bill demands, not only will the original pharmaceutical business be unable to repay its investment, but the market will be disrupted. 

Cause-and-Effect

Because of these upfront expenditures, even the first “generic” competitor may be enticed only if it can offer a price close to the original drug’s. As a result of government restrictions on the innovator, the prospective profit margins of competitors are reduced as well.

Consequently, fewer (if any) competitors will enter the market, keeping monopolies for brand-name drugmakers for far longer periods of time, and in certain situations, possibly indefinitely. 

What is the result of a prescription drug’s virtual monopoly without generic competition?

Price increases for everyone, if new medicines are developed at all. The same pricing limitations that harm the generic medication business will also discourage companies from conducting costly investments in the first place. 

The Manchin-Schumer proposal would not only result in increased pricing for generic pharmaceuticals, but would also impose an additional cost in the form of human misery among patients who won’t be treated by drugs that were never created.

It is abhorrent.

This article appeared in NewsHouse and has been published here with permission.

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