UPDATE: The executive order President Trump signed today does in fact attempt to impose price controls on private purchases of prescription drugs. See this blog post for specifics. The substance of this blog post remains true.
Government should not purchase medicines for civilians. Period. The US Medicare and Medicaid programs illustrate why. Medicare pays significantly higher prices for medicines than other government programs. Medicaid likewise overpays for prescription drugs and has spillover effects that increase drug prices for private purchasers. These programs pay excessive prices partly because Congress largely let the pharmaceutical industry write each program’s drug-pricing rules.
Government should get out of the business of purchasing or subsidizing medicines for civilians. In other words, the price that Medicare and Medicaid should be paying for drugs is $0.00. To the extent that Trump’s executive order moves the prices Medicare pays for medicines closer to the ideal price of $0.00, it is a step in the right direction.
It is not a “price control” when the government reduces the prices Medicare pays for drugs. Price controls are coercive restraints government places on private actors. If Medicare pays less for drugs, by contrast, private actors remain free to buy and sell at whatever prices make them happy.
If Congress fears that lower Medicare prices would lead to insufficient pharmaceutical research, development, and innovation, the way to correct that market failure is to adjust the patent system. Medicare is not a drug-innovation program. Moreover, the patent system is constitutional. Medicare is not.
