An End to Global Welfare System for Drug Pricing

At the conclusion of World War II, the United States adopted the Marshall Plan which was designed to rebuild the infrastructure and economies of seventeen European nations in the aftermath of World War II. It was done in part to prevent the advance of Soviet Communism. It worked. The intention was that the assistance would be channeled through the State Department in the form of targeted foreign aid. It worked. In fact it worked so well that we began to expand the concept to other nations across the world. And we began to expand the concept through other government agencies; e.g. the Department of Agriculture, the Department of Defense, etc. We became so accustomed to writing checks for international welfare we even increased our support of the United Nations to that it could take credit for it our largesse in funding their programs.

As in most instances the gratitude for our generosity dissipated over time and was replaced by the expectation of financial support much like our domestic welfare programs. We went from “Thank You” to “You Owe Me.” And that froze the politicians in America who believed that regular payments to foreign governments was the only means of acquiring loyalty. And that was the beginning of the transition from Uncle Sam to Uncle Sugar and on to Uncle Stupid. The concept was highlighted by former Presidents Barack Obama and Joe Biden who believed that withdrawing any level of international welfare would aggravate already fragile relationships. In point of fact they decided that increasing foreign aid to our sworn enemies – like Iran – was the only means of dealing with them. And they all laughed at us inside their respective villas as to how weak and stupid we had become.

Now, I say all of that so that I can put in context the recent executive order from President Donald Trump regarding the costs of drugs for Medicare and Medicaid recipients. So, in the pricing of drugs created in America – whether actually produced domestically or not, the actual production costs of making the drugs AND the cost of the research and testing of the drugs are recovered in the prices to Medicare, Medicaid and most domestic corporate and individual insurance programs. Those same drugs are sold in foreign lands for only a percentage of what we pay because they only seek to recover the production costs which are relatively low. In essence the American healthcare system is subsidizing the research and development of new drugs and treatments for all the reset of the world – including our neighbors in Canada and Mexico and our allies and trading partners in Europe. Uncle Stupid for sure.

What Mr. Trump has done is simply required the implementation of the “favored nations” status for drug pricing. Simply stated, the lowest price that drug companies charge other countries will determine the domestic price charged in America. It is not “price controls” as Sen. Rand Paul (R-KY) has suggested and that he uses to justify opposition to Mr. Trump’s initiative. Rather it is a “free market” response to foreign governments’ imposition of subsidies. Mr. Paul apparently thinks that “free markets” apply only to the United States instead of understanding that a “free market” by definition requires a “fair market” – a market unaffected by subsidies or barriers by governments.

Spending for drugs in the Medicaid and Medicare programs amounts to approximately forty one percent of the total spending by the federal government for these two programs. And Medicare expenditures alone are in neighborhood of $1 Billion annually depending on which study you look at. That in itself is bit of a puzzle that an expenditure for such a large amount can vary so much depending on the source – a result that is typical particularly when a program is a political football like Medicare and Medicaid. At any rate the figures do not include the additional amounts charged to seniors under Medicare Supplemental Insurance.

So if you are buoyed by the prospect of Americans no longer being forced to bear the total cost of research and development and that pricing for drugs in America will be as low as those in Canada, Europe and other developed nations, you should stand up and cheer. And in fact, that is exactly what is happening for everybody but the Democrat political class who, in reality, do not object to the outcome, just the person who proposed it – Mr. Trump. After all the solution has been at hand for as long as we have allowed the current process to exist. But like most welfare programs, whether local or global, they are unsustainable unless you can find an Uncle Stupid and a series of stupid politicians who shy from ever challenging the status quo.

Fire them all and start over.