“Foreign reference pricing” is just price controls by the backdoor
The world is full of bad ideas that self-interested parties sometimes try to bring to these shores, swearing up and down they’re actually good: karaoke, kale, Neti pots, the Yugo, the Macarena, Gerard Depardieu — the list goes on. To this hall of shame must now be added a genuinely dangerous idea: foreign reference pricing, a policy proposal currently under consideration which would force drugmakers in the U.S. to lower prices based on comparisons with drug prices in other countries.
Foreign reference pricing is often presented as a market-friendly alternative to market-distorting price controls — after all, it’s just bringing U.S. drug prices in line with other countries. However this argument is disingenuous at best: for one thing, many of the foreign countries included in price comparisons have already instituted arbitrary price controls themselves (often justified by, you guessed it, foreign reference pricing) meaning America would just be importing price controls through the back door. The results would be the same as in other countries, including shortages of critical, sometimes life-saving drugs.
Worse still, like other arbitrary price controls, foreign reference pricing jeopardizes the development of new cures and treatments, by making it impossible for pharmaceutical companies to justify the substantial R&D investments required — an average of $2.6 billion for each new drug that reaches the market.
Thankfully commonsense may yet prevail: this week the Competitive Enterprise Institute hosted a panel of expert economists and patient advocates who detailed precisely how bad an idea reference pricing really is. TES published a complete summary of the panel, with quotes from notable thinkers, available here. With luck members of Congress will listen — we don’t want to make the kombucha mistake again.
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Andy Blom is a veteran political and public policy pro with decades of experience in Washington, D.C. circles.
