The Creates Act: Lower drug costs without price controls
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Some American politicians—including, it seems, both Hillary ClintonHillary Diane Rodham ClintonHillary Clinton slams Trump for spreading 'sexist trash' about Pelosi Gillibrand seizes on abortion debate to jump-start campaign DNC boss says candidates to be involved in debate lottery MORE and Donald TrumpDonald John TrumpA better VA, with mental health services, is essential for America's veterans Pelosi, Nadler tangle on impeachment, contempt vote Trump arrives in Japan to kick off 4-day state visit MORE—want to reduce the high cost of prescription drugs by imposing government price controls.

But there’s a problem: price controls kill.

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Forty centuries of human experience have shown that price controls do not work, and often harm the very people they’re intended to help. The principal effect of price controls is to create artificial scarcity. And when scarcity is inflicted on vital necessities like food, water, and medicine—people get hurt. Price controls kill.

Happily, there is an alternative to price controls: markets. Free markets bring down prices, and improve quality, without harming people. (Appropriately regulated markets, to be sure.)

If you want lower prices, let free markets do what free markets do.

Thankfully, there is a bill pending in Congress that would make prescription-drug markets, if not free, at least a good bit freer.

The Creates Act (H.R.2212 in the House, S.974 in the Senate) would promote drug price competition by making it easier for medicines whose patents have expired to be sold as less expensive generic versions.

The list of the bill’s Senate co-sponsors includes such famous liberals as Sens. Dianne FeinsteinDianne Emiel FeinsteinFive takeaways from Barr's new powers in 'spying' probe Senate Democrats to House: Tamp down the impeachment talk Feinstein, Iranian foreign minister had dinner amid tensions: report MORE (D-Calif.), Richard DurbinRichard (Dick) Joseph DurbinSenate Democrats to House: Tamp down the impeachment talk Threat of impeachment takes oxygen out of 2019 agenda Senate Democrats request watchdog, Red Cross probe DHS detention facilities MORE (D-Ill.), and Susan CollinsSusan Margaret CollinsThe Hill's Morning Report - Trump says no legislation until Dems end probes Collins offering bill to boost battery research as GOP pushes energy 'innovation' Biden says Congress must move to protect abortion rights MORE (R-Maine), and such equally famous conservatives as Sens. Mike LeeMichael (Mike) Shumway LeeOn The Money: Senate passes disaster aid bill after deal with Trump | Trump to offer B aid package for farmers | House votes to boost retirement savings | Study says new tariffs to double costs for consumers Senate passes disaster aid bill after deal with Trump Hillicon Valley: Google delays cutting off Huawei | GOP senators split over breaking up big tech | Report finds DNC lagging behind RNC on cybersecurity MORE (R-Utah), Ted CruzRafael (Ted) Edward CruzOn The Money: Conservative blocks disaster relief bill | Trade high on agenda as Trump heads to Japan | Boeing reportedly faces SEC probe over 737 Max | Study finds CEO pay rising twice as fast as worker pay Conservative blocks House passage of disaster relief bill The Hill's Morning Report — After contentious week, Trump heads for Japan MORE (R-Texas), and Rand PaulRandal (Rand) Howard PaulOvernight Defense: 1,500 troops heading to Mideast to counter Iran | Trump cites Iran tensions to push through Saudi arms sale | Senate confirms Army, Navy chiefs before weeklong recess Trump to send 1,500 troops to Middle East to counter Iran Frustration boils over with Senate's 'legislative graveyard' MORE (R-Ky.). At the same time, a broad coalition supports the bill, whose members range from AARP and Public Citizen on the left to FreedomWorks and the Heritage Foundation on the right.

This bill is a no-brainer—and a perfect counter to price controls.

As I mentioned, both major-party candidates for president in 2016 endorsed price controls. Or rather, they endorsed the idea of harnessing Medicare’s massive purchasing power to drive down drug costs for seniors and the disabled. Which, while it may sound good, is really just price controls by another name.

Why? Because Medicare is a monopoly. It has no effective competition. If it were allowed to do so, it could pretty much set its own price.

Well, almost. If it set the price too law, as it likely would try to do, the drug companies would have no choice but to walk away. If that happened, the supply of life-saving drugs for seniors would dry up and innovation would slow down. Basically, the goose that lays the golden eggs would get cooked. We’d have artificial scarcity, a la bureaucracy.

The Creates Act would take the opposite approach. It would remove barriers to competition by shortening the time between a drug’s going off-patent and the date when competitor products can enter the market.

A patent is a temporary government-granted monopoly—nowadays, it typically runs 20 years. To receive this monopoly, the inventor must disclose his secrets to the public. Once the patent expires, any would-be competitor can take advantage of the published secrets to offer the same invention at a competitive (i.e., a lower) price.

The patent system is a blessing that makes life better for everyone, accelerating innovation today and reducing prices tomorrow. But when patent monopolies are extended beyond their rightful term, prices remain high and patients suffer.

Today brand-name drug makers are exploiting a weakness in the drug-safety laws to prolong their monopolies.

The federal Food and Drug Administration (FDA) requires generic drug makers to prove that a proposed alternative version of a drug is chemically identical to the original and just as safe. To do that, the would-be competitor needs to have, not just the formula for the patented drug, but also samples of that drug, and in sufficient quantities to carry out comprehensive comparison tests. To thwart competition, some drug makers simply refuse to sell the needed samples to their potential competitors, or overcharge for them, or slow-walk delivery.

Without sufficient quantities of the patented drug, no one can meet the FDA safety requirements, and thus no one can legally sell the drug, and thus no one can compete. Which effectively makes the patent perpetual.

A patent is a temporary privilege, not a perpetual right.

To fix this problem, the Creates Act authorizes the would-be competitor to sue the maker of the patented drug, to compel the latter to provide it with the federally required drug samples at a fair market price within a reasonable time.

Wisely, the Creates Act takes a light touch. It narrowly authorizes the courts to resolve drug-sample disputes case-by-case, rather than delegating sweeping new regulatory powers to some federal bureaucracy. And it does nothing to weaken the validity of a patent.

But wait. Wouldn’t the government be forcing a private producer to help his own competitors? Yes, but only to the limited extent necessary to enforce the temporary nature of the patent, in individual cases, in order to promote public health and safety.

Remember, the alternative is to let private patent monopolies basically set their own price. To take just one real-world example, in 2015 Turing, which refused to sell samples of its drug Daraprim to would-be competitors, hiked the drug’s sticker price by 5,000 percent, from $14 a pill to $750.

Price controls invariably harm patients. So do unlawful monopolies.

Between these two extremes lies an elegant, bipartisan, and broadly popular solution: the Creates Act, which would reduce drug prices without harming anyone.

Congress should pass this no-brainer, pronto.

Dean Clancy, a former senior Republican official in Congress and the White House, writes on U.S. health reform, budget, and constitutional issues. Follow him at deanclancy.com or on twitter @deanclancy.