With new drug pricing order, Trump flirts with socialized medicine

With new drug pricing order, Trump flirts with socialized medicine

BY MERRILL MATTHEWS

President Trump’s recent executive order on drug prices gets almost everything right — except the solution. Ironically, that solution moves the United States toward socialized medicine, which the president vociferously opposes.

The order says, “Americans pay more per capita for prescription drugs than residents of any other developed country.” That’s certainly true for most brand name drugs, though Americans typically pay much less for generic drugs, which account for about 90 percent of all U.S. prescriptions — a fact often ignored in the health policy debates.

The EO is also correct that “Americans pay more for the exact same drugs, often made in the exact same places.” As a result, Americans “finance much of the biopharmaceutical innovation that the world depends on.” https://d0a997f558a95ead2e8d0c2375aca6dd.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html#xpc=sf-gdn-exp-4&p=https%3A//thehill.com

But Trump’s executive order won’t fix these problems. It will only make it as hard for American patients to obtain the newest, cutting-edge drugs as it is for many patients in foreign countries the president wants to emulate. 

The order forbids Medicare from paying more for drugs than the lowest price available in any member country of the Organization for Economic Cooperation and Development (OECD), after adjusting for per-capita income. Trump calls it a “most-favored-nation price.” 

The order claims those nations enjoy low drug prices because they “negotiate” with pharmaceutical manufacturers. But what the order describes as a negotiation is more akin to a hostage-taking — with their own citizens held for ransom. 

Bureaucrats in those nations’ systems – most of which are largely or completely controlled by the government – often refuse to cover drugs unless manufacturers sell the medicines far below fair-market prices. 

In Canada, for example, just 46 percent of new drugs approved worldwide between 2011 and 2018 are actually available to Canadian patients. And the average delay between approval and availability in Canada is 15 months. In the United Kingdom, it’s 59 percent and 18 months.https://d0a997f558a95ead2e8d0c2375aca6dd.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html#xpc=sf-gdn-exp-5&p=https%3A//thehill.com

But in the United States it’s 87 percent and three months or less.

Those are months – and in some countries, years – that patients go without access to the newest treatments. Some drugs are never made available. 

The U.S. government doesn’t treat its people so callously — or at least it hasn’t. Medicare covers virtually every FDA-approved medicine, and it sets reimbursements based on prices in the commercial market. This market-based pricing ensures that the newest drugs are available and doctors, not government gatekeepers, decide which drugs to prescribe. 

It’s a shame that the president has adopted other countries’ socialized medicine prices because he so often criticizes foreign freeloading. 

Recall that when Trump took office, he saw that our NATO allies were not paying their fair share toward the alliance’s mutual defense, even though the members had for years committed to raising their defense spending to at least 2 percent of GDP to support the alliance. 

With new drug pricing order, Trump flirts with socialized medicine

President Trump’s recent executive order on drug prices gets almost everything right — except the solution. Ironically, that solution moves the United States toward socialized medicine, which the president vociferously opposes.

The order says, “Americans pay more per capita for prescription drugs than residents of any other developed country.” That’s certainly true for most brand name drugs, though Americans typically pay much less for generic drugs, which account for about 90 percent of all U.S. prescriptions — a fact often ignored in the health policy debates.

The EO is also correct that “Americans pay more for the exact same drugs, often made in the exact same places.” As a result, Americans “finance much of the biopharmaceutical innovation that the world depends on.” https://d0a997f558a95ead2e8d0c2375aca6dd.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html#xpc=sf-gdn-exp-4&p=https%3A//thehill.com

But Trump’s executive order won’t fix these problems. It will only make it as hard for American patients to obtain the newest, cutting-edge drugs as it is for many patients in foreign countries the president wants to emulate. 

The order forbids Medicare from paying more for drugs than the lowest price available in any member country of the Organization for Economic Cooperation and Development (OECD), after adjusting for per-capita income. Trump calls it a “most-favored-nation price.” 

The order claims those nations enjoy low drug prices because they “negotiate” with pharmaceutical manufacturers. But what the order describes as a negotiation is more akin to a hostage-taking — with their own citizens held for ransom. 

Bureaucrats in those nations’ systems – most of which are largely or completely controlled by the government – often refuse to cover drugs unless manufacturers sell the medicines far below fair-market prices. 

In Canada, for example, just 46 percent of new drugs approved worldwide between 2011 and 2018 are actually available to Canadian patients. And the average delay between approval and availability in Canada is 15 months. In the United Kingdom, it’s 59 percent and 18 months.https://d0a997f558a95ead2e8d0c2375aca6dd.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html#xpc=sf-gdn-exp-5&p=https%3A//thehill.com

But in the United States it’s 87 percent and three months or less.

Those are months – and in some countries, years – that patients go without access to the newest treatments. Some drugs are never made available. 

The U.S. government doesn’t treat its people so callously — or at least it hasn’t. Medicare covers virtually every FDA-approved medicine, and it sets reimbursements based on prices in the commercial market. This market-based pricing ensures that the newest drugs are available and doctors, not government gatekeepers, decide which drugs to prescribe. 

It’s a shame that the president has adopted other countries’ socialized medicine prices because he so often criticizes foreign freeloading. 

Recall that when Trump took office, he saw that our NATO allies were not paying their fair share toward the alliance’s mutual defense, even though the members had for years committed to raising their defense spending to at least 2 percent of GDP to support the alliance. ADVERTISING

Trump did not respond to this inequity by swearing the United States would only spend as much as our stingiest ally. Instead, he called them out publicly and exhorted our allies to increase their contributions to our mutual defense, which was in everyone’s interest. And they responded.

With medicines, too, our allies don’t pull their weight, content to let U.S. patients and taxpayers carry the load. That hurts Americans and Europeans alike. If Europeans paid 20 percent more for drug costs – hardly closing the gap – Americans and Europeans would gain a combined $17.5 trillion benefit in overall welfare over 50 years, according to an analysis from University of Southern California researchers

New drugs – which cost an average of $1.6 billion each to develop – are paid for by the revenue from current treatments. That’s the capital drug manufacturers used to begin research on a COVID-19 vaccine — long before the federal government ponied up any cash.

If we cut that revenue stream, it’ll lead to less R&D and fewer innovative treatments in the future. One study of adopting “international reference pricing,” which is similar to the most-favored-nation pricing approach, found that it could reduce new drug discovery by 88 percent. That’s too high a price to pay for cheaper drugs now. When friends and allies engage in self-destructive behavior, the correct response is not to emulate their mistakes, but to help them choose a better path. Today, the majority of new drugs invented globally are invented in America, in large part because our government does not dictate prices. The president should keep it that way, and, just as he did with NATO, demand that our allies fall in line. 

BY MERRILL MATTHEWS, OPINION CONTRIBUTOR— Appearing in the Hill on 10/08/20

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews.

Congress Must Help Arizonans with Health Coverage

Tyler Montague, President Public Integrity Alliance, Inc.

Arizonans have high expectations of our elected officials in Washington, but measuring up isn’t complicated. Operate with integrity. Listen to families’ concerns. And doggedly represent the interests of regular Americans in a capital awash in powerful and often corrupt influence.

Now as trillions of dollars flow from government in response to the COVID-19 crisis, principled leadership is more important than ever. Hard-working families are hurting, and their needs—not the wish lists pressed by lobbyists and big donors—must be the top priority.

Rampant unemployment means far too many Americans are surviving today without a paycheck, and as many as 27 million may have lost their employer-provided health coverage. Their ranks include a large proportion of the nearly 900,000 Arizonans who have been forced to seek unemployment assistance since the coronavirus pandemic began.[1] [2]

This is the backdrop against which U.S. Senator Martha McSally runs to retain her seat against some stiff competition. To prevail, she’ll need to demonstrate that she understands what families are going through and that she has the tenacity to fight and win on their behalf.

There exists right now a prime opportunity for Senator McSally to prove her mettle to voters. She should propose a health coverage solution to include in the next COVID-19 relief bill, so families needn’t cower any longer in fear of inaccessible healthcare or mounting medical bills. Such a plan should incorporate market-based, time-limited remedies to help employers sustain health coverage through the pandemic, as well as offering the recently unemployed ways to keep the coverage they depend on or find an alternative.

If Senator McSally and her colleagues want other stimulus measures they favor, such as her tourism-focused American TRIP Act, to have any effect, they must first act on health coverage.[3] What’s holding the economy back is no longer the sweeping government lockdowns of March and April—it is the rational concern among many recently uninsured families that they simply cannot afford to get sick.

With reliable health coverage, on the other hand, American families would be more financially secure and could spend more freely. A robust middle class return to the marketplace would have an immediate, positive impact on companies’ revenues, growth, and rehiring and would reduce the need for ongoing government intervention to prop up the economy.

With health coverage, Americans could also continue to take personal responsibility for their own wellness. They could seek preventive care or obtain prescription medications to control underlying medical conditions, for example, and thereby minimize the incidence of severe disease and disability, not to mention the burden on our currently overwhelmed hospitals. 

A healthy country is a good in itself, but it is also the wellspring of economic strength. As we beat back a coronavirus resurgence and U.S. businesses regain traction, they will need millions of employees ready to work. Maintaining health coverage in the meantime will help ensure a robust workforce is there when called.

The key to successful recovery will be to enact the right health coverage solutions, however, not to permanently stifle the economy with the government-run healthcare schemes of the far-left. “Medicare for All” and similar plans represent a dangerous expansion of the bureaucratic state. Such proposals would expose the entirety of the U.S. healthcare system to fraud and other abuses of the public trust. Imagine if lobbying and political donations were to shape decisions about who qualified for medical care and when they could receive it—it’s a nightmare scenario America must avoid.

Unfortunately, the only thing necessary for the triumph of disastrous policy, to paraphrase Edmund Burke, is for good people to do nothing. If Republicans offer no compelling answers on health coverage, they risk devastating losses in November. In an era dominated by Rep. Alexandria Ocasio-Cortez and other avowed socialists, worse outcomes than Obamacare will likely follow a Democratic takeover in Washington.

Why, then, does Mitch McConnell so far appear content to do nothing and court disaster? Senator McSally must convince him otherwise. To attempt to do so is admittedly test of courage. She would need to take on the economic and public health denialism to which some Republicans, including our President, still cling. But the same woman who in March demanded that Senators stop receiving paychecks until they did their jobs and voted to help out-of-work families can certainly handle the pressure. [4] She can once again take a stand for average Americans and bring them the health coverage relief they desperately need.


[1] https://tucson.com/business/at-least-631-000-arizonans-have-sought-regular-jobless-benefits-in-pandemic/article_ee979eee-34af-5970-b5cf-890ae7c0e9f8.html   

[2] The 900,000 is the regular, state unemployment plus federal programs to help contractors, others who wouldn’t otherwise qualify. Both numbers are in the article linked above.

[3] https://fortune.com/2020/06/23/more-stimulus-checks-coronavirus-help-vacation-vouchers/

[4] https://www.azcentral.com/story/opinion/op-ed/laurieroberts/2020/03/24/arizona-sen-martha-mcsally-paychecks-stimulus/2908291001/

FreedomWorks was joined by 17 organizations in sending a letter to President Trump opposing any executive order that would tie prescription drug prices in the United States to those in foreign nations.

BY SARAH ANDERSON

Dear President Trump,

We, the undersigned organizations, representing millions of taxpayers and consumers nationwide, oppose any executive order that would tie prescription drug prices in the United States to those in foreign nations.

There is no denying that the cost of healthcare in the United States is quite high and continues to rise at a rate that is unsustainable for many Americans. Addressing this crisis requires a sober analysis of all of the factors at play and a willingness to come together across the aisle to offer a lasting solution for the millions of families and caregivers in our great nation.

Unfortunately, the “international pricing index” (IPI) and its most recent variant that includes a “most favored nation” (MFN) provision are not the type of solutions our nation needs. In fact, they represent quite the opposite of what is needed.

Any form of price setting is a treatment of symptoms, not causes. Prices stem from the actions and demands of both individuals and groups. As has been shown repeatedly in countries with socialized health care systems, governments cannot expect to set the price of any good – let alone one as crucial as prescription drugs – below its market value without incurring painful consequences.

This is not hypothetical. The healthcare systems in the reference nations upon which the IPI would base its pricing have scores of inefficiencies. These nations routinely suffer from increased wait times, drug shortages, and rationing of care. We need our leaders to do whatever is in their power to prevent these outcomes from making their way to our shores, not to emulate the systems that have engendered them. We cannot implement the same models as other nations and believe we will remain immune to their deficiencies.

A study using data from the National Institutes of Health found that if all developed countries lifted all price controls on prescription drugs, the resulting increase in investment in pharmaceutical research and development would yield eight to thirteen new drugs per year through 2030.

This is pure logic. As we stated earlier, there are distinct economic consequences to holding a commodity below market value. One of those is to increase demand; another is to decrease supply. The resources and time required to develop a new drug and bring it to market are tremendous, and drugmakers must be able to eventually recoup those investments in order to stay in business to develop more cures. Sadly, price controls would leave many waiting in vain for cures that will never come.

With the MFN provision, the U.S. would, by definition, move itself to the back of the line and would be required to have the most stringent price controls globally. Pharmaceutical companies cannot afford to spend exorbitant sums to develop new drugs in a nation that has made itself the worst place on earth to try and recoup their investments.

Beyond the economic and human costs of such a proposal, there are a variety of legal issues with the IPI. First, it relies on an overly broad interpretation of what constitutes a “limited experiment” under the Center for Medicare and Medicaid Innovation’s (CMMI) statutory authority. Implementing this proposal across broad swaths of Medicare is hardly limited, and the ripple effects it would have will impact the entire healthcare industry in our nation.

The administration is trying to argue before the Supreme Court that the Affordable Care Act is unconstitutional and using programs established by the law to implement a sweeping change to healthcare as we know it. This proposal, if implemented, would undermine that worthy fight.

If we’ve learned anything over this tumultuous year, it’s that it is an absolute necessity for our healthcare system to be able to operate with maximum flexibility. Price setting through IPI, and price setting accelerated to its most extreme with MFN would stifle medical innovation at a time where we can least afford it as a nation.

As we look to setting America on a sustainable path towards more affordable healthcare for all our citizens, especially its most vulnerable, all of these considerations must be reviewed thoroughly. It is imperative that this be done right and not hastily, which is why we oppose any executive order that would tie prescription drug prices in the United States to those in foreign nations.

Sincerely,

Adam Brandon, President, FreedomWorks

Grover Norquist, President, Americans for Tax Reform

Brent Wm. Gardner, Chief Government Affairs Officer, Americans for Prosperity

Pete Sepp, President, National Taxpayers Union

Tom Schatz, President, Citizens Against Government Waste

Daniel Schneider, Executive Director, American Conservative Union

David Williams, President, Taxpayers Protection Alliance

Jeff Mazzella, President, Center for Individual Freedom

Karen Kerrigan, President and CEO, Small Business and Entrepreneurship Council

Mario H. Lopez, President, Hispanic Leadership Fund

Ryan Ellis, President, Center for a Free Economy

Andrew Langer, President, Institute for Liberty

James Edwards, Executive Director, Conservatives for Property Rights

Seton Motley, President, Less Government

Matthew Kandrach, President, Consumer Action for a Strong Economy

Heather R. Higgins, CEO, Independent Women’s Voice

Phil Kerpen, President, American Commitmen

RESISTING PROTECTIONISM IN THE PHARMACEUTICAL SUPPLY CHAIN

By Clark Packard and Bill Watson

INTRODUCTION

For about 80 years, the United States has aggressively pursued a policy of expanding overseas markets and lowering domestic tariffs and other non-tariff barriers. This process was achieved through a series of bilateral and regional free trade agreements (FTAs), as well as multilateral agreements through the World Trade Organization (WTO) and its precursor system, the General Agreement on Tariffs and Trade (GATT). Liberalizing international trade in this manner increased the U.S. Gross Domestic Product per capita by about $7,000 and by more than $18,000 (in 2016 dollars) per household.1 Not only that, the poor benefitted disproportionately because they tend to “concentrate spending in more traded sectors.”2 Through these agreements, American firms also were able to establish the certainty they needed to invest abroad, foreign firms invested here and a system of complicated supply chains quickly developed that lowered prices for consumers and enhanced the competitiveness of American firms in globalized markets.

Despite these successes, protectionist opponents on the left and right have long criticized the prevailing consensus for its effect on the domestic manufacturing base.3 “Offshoring,” critics contend, has favored multinational corporations at the expense of the working class.4 Critics also argue that, as a services-heavy economy, the United States is too dependent on imported products from hostile countries and that the U.S. “doesn’t make anything anymore.”5

But, these charges are largely untrue. Today, the United States is the second-largest exporter in the world.6 And, although manufacturing employment (as a percentage of the overall workforce) in the United States has declined, its peak occurred shortly after World War II and began declining in the late 1970s—“long before the North American Free Trade Agreement existed or Chinese imports were more than a rounding error in U.S. GDP.”7 In fact, before the outbreak of COVID-19, manufacturing output was near record highs.8 Instead, it is productivity gains and technological improvements that are the primary drivers of America’s shift away from labor-intensive manufacturing, not import competition or offshoring.9

Despite this reality, American politicians are increasingly interested in reshoring supply chains of various products, especially those deemed “strategic” or required for U.S. national security.10 Hawkish politicians are concerned about U.S. reliance on imports from China and have pushed the United States to embrace a new era of industrial policy.11 Such arguments have intensified since the outbreak of COVID-19, particularly with respect to pharmaceuticals and other products necessary to combat the pandemic. The justification is that non-allies may withhold exports of these critical products, particularly when we need them most. And, accordingly, the administration and Congress are currently considering ways to re-shore some or all of the pharmaceutical supply chain, including a blunt protectionist requirement for the federal government to purchase only pharmaceutical products that are made in the United States.12

Such “Buy American” proposals recently drew a stern rebuke from over 250 leading economists, including Nobel laureates and officials from previous presidential administrations, who warned in a letter organized by the National Taxpayers Union that: “The variety, supply and price of goods available to Americans will suffer under a Buy American regime. Taxpayers and patients will pay more for drugs and medical supplies.”13 And, in fact, any such risk is unnecessary, as there are ways to responsibly increase domestic manufacturing of various pharmaceuticals and active pharmaceutical ingredients (APIs) without resorting to misguided protectionism.

What’s more, to exploit this crisis as a way to radically overhaul pharmaceutical supply chains could be disastrous, especially if done in a haphazard way. For this reason, the present study first explains the costs of re-shoring pharmaceutical supply chains and the benefits of diversity. It then dispels the dubious national security arguments made by politicians, and makes concrete recommendations for the consideration of policymakers who wish to ensure a secure U.S. pharmaceutical supply chain, including steps to responsibly increase domestic production.

DISPELLING MYTHS

In a May 11 op-ed in The New York Times, U.S. Trade Representative Robert Lighthizer criticized the “blind pursuit of efficiency” that resulted in “extended, overseas supply lines.”14 He went on to accuse American businesses of following an offshoring “craze,” as they were “swept up by the herd mentality” and a “lemming-like desire for ‘efficiency’” but without adequately considering the risks that come when “long supply lines flow at the whim of local politics, labor unrest and corruption.” He then claimed that the pandemic “has revealed our over reliance on other countries as sources of critical medicines” and called on policymakers to “remedy this strategic vulnerability […] by shifting production back to the United States.”15

This general antipathy toward globalization has been further energized by concerns that the Chinese government has too much power over the American medical supply. Last December, for example, four U.S. senators warned that “overreliance on Chinese API exports raises the possibility that China could terminate or raise the cost of prescription drugs.”16 They further warned that the Chinese government could choose to “weaponize pharmaceuticals, by restricting exports to the United States” or “incorporating lethal ingredients in final products,” and concluded ominously that this “national security threat cannot be overstated.”17 In fact, such a threat is constantly and dramatically overstated, primarily because of the faulty assumption upon which it is based: namely, that our supply chain is over-reliant on China. Like all products created through complex global supply chains, understanding the country of origin for all components of a finished product can be challenging, and pharmaceuticals are certainly no exception. However, the promotion of false statistics is hardly helpful. For example, in the midst of the current pandemic, irresponsible policymakers and even mainstream media outlets persist in promoting the figure that “80 percent of our drugs come from China.”18 And, while that may sound scary (and is likely designed specifically for that purpose), it is simply false.19

To accurately analyze the source of drug imports is complicated in two important ways. One is the distinction between finished drugs and active pharmaceutical ingredients (APIs), which are the chemicals (like acetaminophen and dextromethorphan) used to make the drugs (like NyQuil) people actually consume. The second is the fact that both finished drugs and APIs are scattered across multiple product codes in national trade databases, and some of those codes include non-pharmaceutical products. It is therefore difficult to accurately estimate the true value and origin of API imports and impossible to know the origin of all APIs that are imported as existing components of finished drugs.

For at least the last 20 years, the FDA has “estimated” that imports from all foreign countries make up “approximately” 40 percent of finished drugs and 80 percent of APIs used by U.S. manufacturers of finished drugs.20 But, in addition to the fact that it is unclear how the agency arrived at this estimate, the number also does not tell us where the APIs in the imported drugs are coming from. And, what’s more, any reasonable attempt to approximate these values does not indicate that anything close to 80 percent of finished drugs—or even 80 percent of the APIs consumed by Americans—are made in China. For example, we know that Chinese manufacturers supply only a small share of the APIs used to make finished drugs in the United States, because the source of those imports is recorded in U.S. trade data. According to analysis by the American Action Forum, a mere “18 percent of total active pharmaceutical ingredient imports, 9 percent of total antibiotic imports, and less than 1 percent of total vaccine imports” come from China.21 In reality, the largest source of imported APIs is Ireland—at about 30 percent.22 And certainly no one would credibly claim that Ireland poses any national security threat to the United States.

Moreover, in recent testimony to Congress, even the director of the FDA’s drug division stated that the agency “cannot determine with any precision the volume of API that China is actually producing, or the volume of APIs manufactured in China that is entering the U.S. market.”23 They do, however, have data on the location of facilities registered with the agency to produce APIs for specific approved drugs. For example, the FDA reports that there are 1,788 facilities in the world that manufacture APIs for drugs consumed in the United States.24 Only 13 percent of these facilities are in China.25 India and the European Union actually produce more of these APIs—at 18 and 26 percent, respectively. Twentyeight percent of the facilities are located here in the United States.26 Of course, even looking at the number of facilities does not tell us the actual volume of APIs from each country, as some facilities may be producing vastly greater quantities than others. But the data we do have does not indicate an excessive reliance on China. On the contrary, it shows that the U.S. pharmaceutical market is served by a diverse array of suppliers from all over the world, including here at home. It also shows that these market-driven supply chains are not, as Ambassador Lighthizer argues, the result of an irrational craze to cut costs at the expense of jobs. In truth, globalization has enabled the U.S. pharmaceutical industry to become a dynamic driver of economic growth in the United States

In a global economy, it is true that the United States is not the best place to invest in large-scale, labor-intensive chemical manufacturing. But America has excelled at inventing new drugs that improve lives and at developing innovative manufacturing techniques that make drug treatments safer, more effective and more affordable. Indeed, the U.S. Dept. of Commerce’s most recent report on the state of the pharmaceutical market certainly does not describe an industry hollowed out by short-sightedness: “Large, diversified and global, the U.S. pharmaceutical industry is one of the most critical and competitive sectors in the economy.”27 The U.S. market for pharmaceuticals is enormous and the United States is indeed the world’s number one importer of finished drugs. But because most drugs made in the world are not consumed in America, the United States is also a major exporter.

While the industry was developing “extended, overseas supply lines,” the value of U.S. pharmaceutical exports tripled to over $50 billion per year.28 The U.S. Bureau of Labor Statistics estimates that approximately 300,000 Americans work in the pharmaceutical industry with a median wage 56 percent higher than the national average.29 This is only made possible by access to the very global network of suppliers that reshoring advocates want to eliminate.

And global supply chains have also not made the market more vulnerable to disruption—intentional or otherwise. Supply chain risk is a well-studied phenomenon, and experts have not found that reliance on domestic production and short supply lines is the best way to avoid risk.30 The robustness of a supply chain (that is, its ability to continue operating when faced with an unforeseen disruption like a natural disaster) can be negatively affected by complexity because it takes more resources and oversight to maintain operations.31 But robustness can also be harmed by geographic concentration because a greater portion of the system is susceptible to a single incident.32 It makes sense, therefore, for companies to seek a diverse network of suppliers and potential suppliers with constant knowledge of their relative capacities. Forcing pharmaceutical companies to rely only on U.S. suppliers would likely expose their operations to greater risk of disruption by prohibiting them from adequately spreading risk.

Rather than reveal dangerous vulnerabilities, the coronavirus pandemic has actually demonstrated that supply lines for the U.S. pharmaceutical market are quite robust compared to other industries. We have seen notable problems in markets for face masks, household goods and food, but the U.S. medicine supply has been almost entirely unaffected. In fact, in its most recent update on the status of drug supplies during the COVID-19 outbreak, the FDA stated that only one drug had been added to the drug shortage list due to a pandemic related factory shutdown in China and that “there are other alternatives that can be used by patients.”33 The agency also identified only 20 drugs (all non-critical) with APIs sourced only from China, and none of those had reported any short-ages.34 Put simply, the evidence to date strongly suggests that the U.S. pharmaceutical supply chain is adequately diverse and robust in the face of unforeseen disruption. Efforts to re-shore all manufacturing of APIs is therefore likely to do more harm than good.

COSTS OF PHARMACEUTICAL AUTARKY

Because of the complex and efficient pharmaceutical supply chains that have developed over the years, prices of prescription drugs are lower than they would be if they were entirely manufactured in the United States. With a growing bipartisan chorus of policymakers in the Trump administration and Congress looking at ways to reduce drug prices, reshoring the entire pharmaceutical supply chain would not only undermine that worthwhile goal, but would raise drug prices.35

In fact, there are a number of reasons why the United States imports finished pharmaceuticals and active pharmaceutical ingredients, which include tax laws, simple comparative advantage and access to raw materials.36 Indeed, a 2011 study from the Food and Drug Administration noted:

Both India and China offer a number of cost advantages, most notably the cost of skilled labor. India in particular trains six times the number of chemists annually than the U.S. produces and companies can access this talent for 10% of the cost of the same talent in America.37

The study also finds that manufacturing in India, for example, can “reduce costs for U.S. and European companies by 30 to 40%.”38 These cheaper production costs mean cheaper drug prices for American consumers. If the United States were to entirely re-shore the pharmaceutical supply chain, it would dramatically increase prescription drug costs for American purchasers, including individuals, federal and state governments, hospitals and insurance companies.

Ironically, forced re-shoring could also bring about the exact result its proponents fear from Chinese interference. That is, by prohibiting American patients, pharmacists and doctors from acquiring safe and effective medicines available on the global market merely because they have a Chinese or other foreign ingredient, the U.S. government may cause the very shortages and price hikes it fears could result from malevolent foreign action. Consider, for example, the recent recall of metformin. Americans managing Type 2 diabetes spend over $3 billion per year filling prescriptions for metformin.39 After the FDA discovered potentially unsafe levels of nitrosamine in some batches of the drug, numerous drug makers pulled their metformin pills off the market.40 But the recall is not expected to affect patients at all because, according to the FDA, “there are additional manufacturers of the metformin ER formulation that supply a significant portion of the U.S. market, and their products are not being recalled.”41 Without access to global supplies, a single instance like this of drug contamination at a manufacturing plant would severely cut the nation’s supply and force patients to go without treatment. Instead, the FDA merely advises anyone currently taking one of the recalled products to “consult with their health care professional who can prescribe a replacement.”42

OVERVIEW OF CURRENT PROPOSALS

Even before the outbreak of COVID-19, policymakers had already begun proposing government interventions in the pharmaceutical chain in order to minimize or eliminate the role of Chinese manufacturing. For example, in October 2019, the House Energy and Commerce Committee held a hearing following a report from the U.S.–China Economic and Security Review Commission, which warned that the Chinese could “use U.S. dependence on China as an economic weapon and cut supplies of critical drugs.”43 That report made a number of recommendations, including additional monitoring and reporting by the FDA, mandatory country-of-origin labels for API and a requirement that all federally funded health systems (including Medicare and Medicaid) “purchase their pharmaceuticals only from U.S. production facilities” subject to some broad exceptions.44 It’s also worth noting that some of the recommendations are directed at all imported drugs and APIs instead of just ones from China, which certainly suggests that protectionism rather than national security is the true motivation behind such measures.

Moreover, a number of bills have been proposed recently in Congress that would enact reforms similar to one or more of the report’s recommendations. The most appropriate, common-sense proposals offered so far in Congress are ones meant to improve our knowledge of the existing supply arrangement through enhanced monitoring and reporting.45 Such knowledge may assuage rising anxiety about Chinese dominance but, even if it does not, a better understanding of the situation is crucial for government planners trying to redesign any major American industry.

In addition to this, a provision of the already enacted CARES Act calls for a report by the National Academies of Sciences, Engineering and Medicine to examine the current state of pharmaceutical and medical device supply chains and to recommend ways to improve resiliency.46 Other bills have called on the FDA to track API production with greater detail so we can know the volume of APIs originating in every country for each approved drug.47 Some proposals seek to promote domestic manufacturing of APIs through targeted tax breaks, grants or regulatory reform. One example of this approach is Senator Marsha Blackburn’s (R-Tenn.) “Securing America’s Medicine Cabinet Act,” which would reform the FDA’s Emerging Technology Program in order to fast-track the approval of new manufacturing methods that could help prevent supply chain disruptions.48

A number of more drastic proposals have been offered that would actively restrict access to drugs with foreign-sourced APIs. One ambitious example is the “Protecting our Pharmaceutical Supply Chain from China Act” proposed by Sen. Tom Cotton (R-Ark.) and Rep. Mike Gallagher (R-Wis.). In addition to having the FDA better track the origin of APIs, requiring country-of-origin information on labels and giving tax breaks to companies expanding domestic manufacturing, the bill would also prohibit U.S. government entities from buying any drugs made from APIs produced in China.49 Such a policy would undoubtedly incentivize pharmaceutical companies to source APIs from elsewhere, but it would also deny patients at VA and other federal hospitals access to drugs. The result would be healthcare decisions driven by industrial policy rather than medical needs. It would also expand the gap between private and public health systems, with the latter burdened by politically motivated inefficiencies that raise costs and reduce the quality of care.

POLICY RECOMMENDATIONS

Sen. Marco Rubio (R-Fla.) has offered a similarly broad bill with four Democratic co-sponsors that also employs a Buy-American strategy but is less targeted at China specifically. Their “Strengthening America’s Supply Chain and National Security Act” would deny any Buy American preferences to U.S.-manufactured drugs made with foreign-sourced APIs.50 Rather than embracing aggressive protectionism through Buy American requirements for federal pharmaceutical purchases, there are better ways to ensure the security of the supply chain and provide proper incentives to re-shore some portions of it to maintain affordable pharmaceuticals and a globally competitive industry. The following sections outline some of the most effective strategies.

Get better data and a clearer picture

As a preliminary matter, better data is needed before policymakers can truly make informed decisions about the future of the pharmaceutical supply chain. Data exists to determine the exact portion of imported APIs used by U.S. drug manufacturers and the countries from which they come. But, there is no data to determine the portion of APIs and their countries of origin used by foreign drug manufacturers exporting to the United States. In order to rectify this, Congress could mandate the disclosure of APIs to the FDA for any drug exported to the United States by foreign drug manufacturers. If such a method is adopted, precautions should be taken to ensure that trade secrets are protected.

Likewise, as mentioned, the CARES Act, passed by Congress in March 2020, requires the National Academies of Science, Engineering and Medicine to perform a study on the security of the pharmaceutical supply chain.51 Rather than exploiting a crisis to make swift and dramatic changes without a clear picture, policymakers should wait for and then use this study to carefully craft an appropriate response.

Lead the charge for liberalization

Since World War II, the United States has been the global leader in the creation and cultivation of the rules-based trading system. The bulwark of this system is the WTO. Every president from Harry Truman to Barack Obama was largely supportive of the WTO and its predecessor, the GATT. Today, that is not the case. The Trump administration has a wellknown antipathy for the Geneva-based forum.52

To be sure, the WTO’s negotiating function has been stuck in neutral for the last several years.53 This is partially understandable, as new rules are necessary to cover various disciplines, such as trade in digital products, that have risen in popularity with the emergence of internet-based commerce but were not accounted for originally. With the outbreak of COVID-19, there is an opportunity for the WTO to reestablish itself as the primary forum for crafting new rules to facilitate predictable rules-based trade in pharmaceutical and other medical products. As the world’s largest economy, the United States should play a leading role in facilitating such trade negotiations.

Additionally, Phil Hogan, the European Union’s Trade Commissioner, recently proposed a global trade negotiation that seeks to “permanently eliminate tariffs on medical goods needed to respond to the COVID-19 health crisis.”54 While lowering tariffs on pharmaceuticals and other medical supplies would be good, it does not go far enough. The larger concern during emergencies is that countries will restrict exports in an attempt to ensure sufficient quantities of certain products are available for domestic consumption. Since the outbreak of COVID-19, about 70 countries have imposed export restrictions on certain medical supplies.55 Unfortunately, WTO rules largely work to restrict only import protectionism, not export protectionism, both of which tend to proliferate during crises and economic downturns.

For these reasons, the United States should be leading the 163 other countries in the WTO to create new rules that prohibit restricting exports of pharmaceuticals and medical supplies during outbreaks.56 Such a move is not unprecedented; in April 2020, the agriculture ministers of the G-20 countries, including the United States, issued a pledge to prohibit food and agricultural export restrictions during the COVID-19 pandemic.57 Likewise, during the financial crisis of 2008, the United States and the other G-20 members issued a pledge that for the next year, they would “refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.”58

If multilateral WTO negotiations to prohibit export restrictions of medical equipment and pharmaceuticals during emergencies are too difficult, too time consuming or face intractable opposition from, say, China, the United States could pursue plurilateral negotiations with some, but not all, WTO members. The United States would likely find willing partners with close allies like Australia, the European Union, Mexico, Canada, Japan, the United Kingdom, Taiwan, Israel and India. Such a group of close U.S. allies could agree not to impose export restrictions and other protectionist measures on medical supplies and pharmaceuticals during emergencies such as pandemics and natural disasters.

Outside the WTO context, the United States should include similar prohibitions on export restrictions during emergencies in future free-trade agreement (FTA) negotiations and consider narrowly revising existing FTAs to include such language.

Another possibility would be for the United States to rejoin the Trans-Pacific Partnership (TPP), a promising trade pact between Pacific Rim nations that President Trump abandoned.59 A primary goal of the TPP was to establish better and more reliable trading relationships with a number of Asian countries in China’s orbit. Rejoining the TPP would therefore strengthen Asian supply chains and provide an alternative to reliance on China. As part of rejoining the TPP, the United States could insist on a provision that would prohibit export restrictions on pharmaceuticals and other medical supplies. It could also look to expand the trade bloc by negotiating accession with countries like India and Taiwan. All of these options are consistent with existing WTO obligations and are preferable to crude attempts to re-shore the entire pharmaceutical supply chain.

Offer full expensing for manufacturing facilities

However, if the goal is to re-shore some of the pharmaceutical supply chain, there are positive steps policymakers can take. As part of the Tax Cut and Jobs Act (TCJA) passed in late 2017, Congress provided temporary full expensing of short-lived investments through 2022, which will phase out entirely by 2026.60 This means that when a firm makes a short-term investment, it can write off the full value of the investment from its tax liability in the year of the investment, rather than phasing it out as the asset depreciates. In order to qualify for full immediate expensing, the asset must have a cost-recovery period of 20 years or less.61

In order to make the United States a more attractive and competitive country in which to produce pharmaceuticals and APIs, policymakers should consider making full expensing permanent and applying it to long-term investments like non-residential structures or manufacturing facilities. This would provide an incentive for pharmaceutical manufacturers to open production facilities in the United States or to move facilities from overseas. Recent legislation was introduced in the House of Representatives that would provide this type of tax treatment to medical supply companies and pharmaceutical manufacturers for their non-residential real-property investments.62 Such a tax change is vastly superior to protectionist Buy American schemes.

Improve tax treatment of research and development costs

Currently, when an American firm makes investments into research and development (R&D), it can deduct those costs from its tax liability during the year in which they occur. This is the right policy. But under the TCJA, Congress mandated that beginning in 2022, firms making R&D investments must amortize those expenses over a five-year period. As the National Taxpayers Union Foundation has noted:

The policy will raise the cost of investments in research and development, meaning companies will be less likely to do R&D. That means less innovation and new technologies for the U.S. economy, leading to lower levels of productivity, lower wages, and a smaller economy.63

In order to incentivize more domestic production of pharmaceuticals and APIs, Congress should correct the TCJA’s treatment of R&D expenses. Full, immediate expensing is vastly preferable to an amortized approach, given the time-value of money.

Deregulate

The regulatory review process for building a pharmaceutical manufacturing facility can be cumbersome, time consuming and costly. If policymakers decide it is important to re-shore some portion of the pharmaceutical supply chain, the FDA should expedite and streamline the approvals of such facilities in order to eliminate costly delays and duplication.

Stockpile essential medicines

In addition to the measures already suggested, the federal government should identify and stockpile essential medicines in a deliberate and careful manner. A recent study by the Mercatus Center argues that policymakers should be utilizing the Defense Production Act to establish purchase guarantees for certain medical equipment necessary to combat COVID-19—along with targeted deregulation—in order to bolster production.64 A similar approach could be used to secure sufficient quantities of essential drugs.

By providing purchase commitments for the essential pharmaceuticals at above-market prices for a sustained period of time, the federal government can provide the proper marketbased incentives to significantly increase the supply of such drugs. Admittedly, the shelf-life of pharmaceuticals is probably shorter than protective masks, but the drugs could be purchased on a more regular basis than other medical equipment. Alternatively, companies could hold the extra stock and cycle in and out of their supplies. In other words, the government would be paying companies to have a rolling surplus of those pharmaceuticals that are deemed essential.

CONCLUSION

The simple reality is that the United States cannot—and should not—produce all pharmaceuticals domestically. Importing finished pharmaceuticals and APIs helps keep costs down. Existing pharmaceutical supply chains are diverse and produce benefits that accrue to American consumers. Exploiting the COVID-19 pandemic to haphazardly undo these supply chains would be a grave mistake that could result in higher prices or shortages of various drugs.

At the same time, if policymakers are concerned that the United States is too dependent on China for pharmaceuticals and APIs, there are steps they can take to lessen that dependence without resorting to costly pharmaceutical autarky or aggressive protectionism. The United States could go a long way toward ensuring a secure supply of pharmaceuticals by exerting global leadership through trade negotiations with like-minded allies. Likewise, policymakers can bolster

FOOTNOTES

1. Gary Clyde Hufbauer and Zhiyao (Lucy) Lu, “The Payoff to America from Globalization: A Fresh Look with a Focus on Cost to Workers,” The Peterson Institute for International Economics, May 2017. https://piie.com/system/files/documents/pb17-16.pdf.

2. Pablo D. Fajgelbaum and Amit K. Khandelwal, “Measuring the Unequal Gains from Trade,” The Quarterly Journal of Economics 131:3 (August 2016), pp. 1113-80. https://academic.oup.com/qje/article-abstract/131/3/1113/2461162?redirectedFrom=fulltext.

3. See, e.g., Tom Hamburger, Carol D. Leonnig, and Zachary A. Goldfarb, “Obama’s record on outsourcing draws criticism from the left,” The Washington Post, July 9, 2012. https://www.washingtonpost.com/business/economy/obamas-record-on-outsourcing- draws-criticism-from-the-left/2012/07/09/gJQAljJCZW_story.html; Patrick J. Buchanan, “Is Free Trade Falling Out of Fashion,” Buchanan.org, Feb. 18, 2004. https://buchanan.org/blog/pjb-is-free-trade-falling-out-of-fashion-578.

4. Robert E. Lighthizer, “The Era of Offshoring U.S. Jobs is Over,” The New York Times, May 11, 2020. https://www.nytimes.com/2020/05/11/opinion/coronavirus-jobs-offshoring.html.

5. Chris Wallace, “Interview with Donald Trump,” Fox News Sunday, Oct. 18, 2015. https://www.youtube.com/watch?v=aXqEcU0W5JI.

6. Jeff Desjardins, “These are the world’s biggest exporters,” World Economic Forum,June 25, 2018. https://www.weforum.org/agenda/2018/06/these-are-the-worldsbiggest-exporters.

7. Scott Lincicome, “The Truth about Trade,” National Review, April 4, 2016. https://www.nationalreview.com/2016/04/trade-jobs-free-trade-hurting-american-economy.

8. Laura Beth Harris, “Manufacturing Output Hits All-Time High, Signaling Industry’s Strength,” National Association of Manufacturers, July 29, 2019. https://www. nam.org/manufacturing-output-hits-all-time-high-signaling-industrys-strength-5546/?stream=workforce.

9. Michael J. Hicks and Srikant Devaraj, “The Myth and the Reality of Manufacturing in America,” Ball State University, April 2017. https://conexus.cberdata.org/files/Mfg-Reality.pdf.

10. Olivia Beavers, “Momentum grows to change medical supply chain from China,” The Hill, April 5, 2020. https://thehill.com/policy/national-security/491119-momentum-grows-to-change-medical-supply-chain-from-china.

11. Marco Rubio, “We Need a More Resilient American Economy,” The New York Times, April 20, 2020. https://www.nytimes.com/2020/04/20/opinion/marco-rubio-coronavirus-economy.html.

12. Ana Swanson, “Coronavirus Spurs U.S. Efforts to End China’s Chokehold on Drugs,” The New York Times, March 11, 2020. https://www.nytimes.com/2020/03/11/business/economy/coronavirus-china-trump-drugs.html.

13. Economists’ Letter to President Trump, Speaker Pelosi and Leader McConnell, May 2020. https://www.ntu.org/library/doclib/2020/05/economist-letter-2-.pdf.

14. Robert Lighthizer, “The Era of Offshoring U.S. Jobs is Over,” The New York Times, May 11, 2020. https://www.nytimes.com/2020/05/11/opinion/coronavirus-jobs-offshoring. html.

15. Ibid.

16. Sen. Elizabeth Warren et al., Letter to Mark T. Esper, Dec. 5, 2019. https://www.warren.senate.gov/imo/media/doc/2019.12.05%20Letter%20to%20DoD%20re%20pharmaceutical%20product%20supply%20chain.pdf.

17. Ibid.

18. Eric Boehm, “Why You Shouldn’t Trust Anyone Who Claims 80 Percent of America’s Drugs Come From China,” Reason, April 6, 2020. https://reason.com/2020/04/06/why-you-shouldnt-trust-anyone-who-claims-80-percent-of-americas-drugs-come-from-china.

19. Ibid.

20. See, e.g., “Food and Drug Administration: Improvements Needed in the Foreign Drug Inspection Program,” U.S. General Accounting Office, March 17, 1998, p. 1. https://www.gao.gov/assets/230/225564.pdf; “Drug Safety: FDA Has Improved Its Foreign Drug Inspection Program, but Needs to Assess the Effectiveness and Staffing of its Foreign Offices,” U.S. General Accounting Office, Dec. 16, 2016, p. 1. https://www.gao.gov/assets/690/681689.pdf.

21. Jacqueline Varas, “U.S. Dependence on Chinese Pharmaceuticals is Overstated,” American Action Forum, May 20, 2020. https://www.americanactionforum.org/insight/u-s-dependence-on-chinese-pharmaceuticals-overstated.

22. Ibid.

23. Statement of Janet Woodcock, “Safeguarding Pharmaceutical Supply Chains in a Global Economy,” House Committee on Energy and Commerce, Subcommittee on Health, Committee on Energy and Commerce, U.S. House of Representatives, 116th Congress, Oct. 30, 2019. https://energycommerce.house.gov/sites/democrats.energycommerce.house.gov/files/documents/Testimony-Woodcock-API_103019.pdf.

24. Ibid.

25. Ibid.

26. Ibid.

27. International Trade Administration, “2016 Top Market Report: Pharmaceuticals,” U.S. Dept. of Commerce, 2016, p.3. https://legacy.trade.gov/topmarkets/pdf/Pharmaceuticals_Executive_Summary.pdf.

28. “U.S. Biopharmaceutical Goods Export Volume from 2002 to 2018,” Statista, lastaccessed June 8, 2020. https://www.statista.com/statistics/215814/us-biopharmaceutical-export-volume.

29. U.S. Bureau of Labor Statistics, “May 2019 National Industry-Specific Occupational Employment and Wage Estimates: NAICS 325400 – Pharmaceutical and Medicine Manufacturing,” U.S. Dept. of Labor, May 2019. https://www.bls.gov/oes/2019/may/naics4_325400.htm.

30. Sébastien Mirodout, “Resilience Versus Robustness in Global Value Chains: Some Policy Implications,” Richard Baldwin and Simon Evenett eds., COVID-19 and Trade Policy: Why Turning Inward Won’t Work (CEPR Press, 2020), p. 123. https://voxeu.org/content/covid-19-and-trade-policy-why-turning-inward-won-t-work.

31. Christian F. Durach et al., “Antecedents and Dimensions of Supply Chain Robustness:A Systematic Literature Review,” International Journal of Physical Distributionand Logistics Management 45:1 (2015), pp. 125-32.

32. Ibid.

33. U.S. Food and Drug Administration, “Coronavirus (COVID-19) Supply Chain Update,” Press Release, Feb. 27, 2020. https://www.fda.gov/news-

34. Ibid.

35. Yasmeen Abutaleb and Erica Warner, “Trump’s support for bipartisan Senate drug pricing bill may not be enough to push it into law,” The Washington Post, Feb. 18, 2020. https://www.washingtonpost.com/health/2020/02/18/trumps-support-bipartisan-senate-drug-pricing-bill-might-not-be-enough-push-it-into-law.

36. Sally C. Pipes, “Proposed ‘Buy American’ Requirements Would Hurt Patients and the Economy,” Pacific Research Institute, April 2020, p. 6. https://www.pacificresearch. org/wp-content/uploads/2020/04/BuyAmerica_F.pdf.

37. “Pathway to Global Product Safety and Quality,” U.S. Food and Drug Administration, 2011, p. 20.

38. Ibid.

39. Richard Franki, “Top-selling drugs going to patients with diabetes,” MDEdge, March 12, 2018. https://www.mdedge.com/cardiology/article/160612/diabetes/topsellingdrugs-going-patients-diabetes.

40. David J. Neal, “Diabetes medicine recalled for having too much of a carcinogen. More recalls are likely,” Miami Herald, May 29, 2020. https://www.miamiherald.com/news/health-care/article243081016.html.

41. U.S. Food and Drug Administration, “FDA Alerts Patients and Health Care Professionals to Nitrosamine Impurity Findings in Certain Metformin Extended-Release Products,” Press Release, May 28, 2020. https://www.fda.gov/news-events/pressannouncements/fda-alerts-patients-and-health-care-professionals-nitrosamineimpurity-findings-certain-metformin.

42. Ibid.

43. “2019 Annual Report,” U.S.-China Economic and Security Review Commission, Nov. 14, 2019, p. 248. https://www.uscc.gov/annual-report/2019-annual-report.

44. Ibid., p. 249.

45. See, e.g., H.R. 5982, Safe Medicine Act, §3, 116th Congress.

46. CARES ACT, Sec. 3101.

47. See, e.g., H.R. 6049, Medical Supply Chain Security Act, §2(a)(5), 116th Congress.

48. S. 3432, Securing America’s Medicine Cabinet Act of 2020, 116th Congress.

49. Office of Sen. Tom Cotton, “Cotton, Gallagher Introduce Bill to End U.S. Dependence on Chinese-Manufactured Pharmaceuticals,” Press Release, March 18, 2020. https://www.cotton.senate.gov/?p=press_release&id=1342.

50. Office of Sen. Marco Rubio, “Rubio, Colleagues Introduce the Strengthening America’s Supply Chain and National Security Act,” Press Release, March 19, 2020. https://www.rubio.senate.gov/public/index.cfm/2020/3/rubio-colleagues-introducethe-

51. Section 3101 of Public Law 116-136.

52. See, e.g., Lauren L. Rollins and Clark Packard, “Trump is Trying to Dismantle the WTO. That Can’t Happen,” The Bulwark, April 26, 2019. https://thebulwark.com/trump-is-trying-to-dismantle-the-wto-that-cant-happen; Clark Packard, “Trump’s Real Trade War Is Being Waged on the WTO,” Foreign Policy, Jan. 9, 2020. https://foreignpolicy.com/2020/01/09/trumps-real-trade-war-is-being-waged-on-the-wto.

53. See, e.g., Clark Packard, “Crisis and Opportunity: The Multilateral Trading System at a Crossroads,” R Street Policy Study No. 167, March 2019. https://www.rstreet.org/wp-content/uploads/2019/03/Final-167.pdf.

54. Bryce Baschuk, “Europe Seeks to Abolish Tariffs in $597 Billion Medical Trade,” Bloomberg, April 16, 2020. https://www.bloomberg.com/news/articles/2020-04-16/europe-seeks-to-abolish-tariffs-in-597-billion-medical-trade.

55. Jason Douglas, “As Countries Bar Medical Exports, Some Suggest Bans May Backfire,” The Wall Street Journal, April 4, 2020. https://www.wsj.com/articles/ascountries-bar-medical-exports-some-suggest-bans-may-backfire-11585992600.

56. Dr. Mona Pinchis-Paulsen, “Thinking Creatively and Learning from COVID-19—How the WTO can Maintain Open Trade on Critical Supplies,” OpinioJuris, April 2, 2020. https://opiniojuris.org/2020/04/02/covid-19-symposium-thinking-creatively-andlearning-from-covid-19-how-the-wto-can-maintain-open-trade-on-critical-supplies.

57. Agriculture Ministers, “Ministerial Statement on COVID-19,” G-20, April 21,2020.https://g20.org/en/media/Documents/G20_Agriculture%20Ministers%20Meeting_Statement_EN.pdf.

58. Chad P. Bown, “COVID-19 Could Bring Down the Trading System,” Foreign Affairs, April 28, 2020. https://www.foreignaffairs.com/articles/united-states/2020-04-28/covid-19-could-bring-down-trading-system.

59. Note: the TPP moved forward without the United States. It is now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

60. Erica York and Alex Muresianu, “The TCJA’s Expensing Provision Alleviates the Tax Code’s Bias Against Certain Investments,” Tax Foundation, Sept. 5, 2018. https://taxfoundation.org/tcja-expensing-provision-benefits.

61. Ibid.

62. H.R. 6690, The Beat China Act, 116th Cong.

63. Nicole Kaeding, “Correcting the TCJA’s Mistreatment of R&D Costs,” National Taxpayers Union Foundation, Oct. 8, 2019. https://www.ntu.org/foundation/detail/correcting-the-tcjas-mistreatment-of-rd-costs.

64. Caleb Watney and Alec Stapp, “Masks for All: Using Purchase Guarantees and Targeted Deregulation to Boost Production of Essential Medical Equipment,” Mercatus Center, April 8, 2020.https://www.mercatus.org/system/files/watney_and_stapp_-_policy_brief_-_covid_series_-_masks_for_all_-_v1.pdf.

Ducey Wants to Flatten the Curve, Not Shutdown the Great Outdoors

By Calamity June

On Monday, March 30th, Governor Doug Ducey issued an Executive Order suggesting Arizonans “stay home, stay healthy and stay connected.”  Governor Ducey went on to state Arizonans should “limit their time away from home and if they do go out, to ensure social distancing.”  Finally, Arizonans are “staying home because it’s the right thing to do.”  Governor Ducey remarked, “when you use words like shelter in place, that’s what happens during a nuclear attack.”

This means our state’s hiking trails and parks can remain open for people to enjoy and get some exercise as long as we all practice physical distancing.  

During his news conference, Ducey listed off “essential services,” and stressed how the grocery store’s shelves would remain stocked and drug stores would remain open.  Restaurants would still be open for takeout and delivery.  Furthermore, he encouraged people to only purchase a week’s worth of groceries. As President Donald Trump and others have noted, the supply chain is operable and there is no reason to hoard anything.  Don’t be greedy. 

This means our state’s hiking trails and parks can remain open for people to enjoy and get some exercise as long as we all practice physical distancing.  

US Senator Kyrsten Sinema had a phone call earlier in the day on Monday 30th with a lot of the liberal mayors in Arizona pushing them to defy Governor Ducey and issue their own “shelter in place” order. After the mayors’ call, the mayor of Phoenix issued her own directive to close all of Phoenix’s hiking trails.  

Fortunately, Phoenix Councilman Sal DiCiccio embodies the duty to present the calm during COVID-19.  God Bless Councilman DiCiccio for pushing back against Mayor Gallego every time she has pushed to shut down anything in Phoenix.  

Listen to Councilman DiCiccio on Seth Leibsohn’s March 31st radio show.  As you will hear, Councilman DiCiccio remarked how the city isn’t sanitizing the light rail or the buses. Why aren’t they closing public transportation? Why does the mayor want to close our parks and hiking trails?  It doesn’t add up.

On April 1st, City Hall is scheduled to vote on closing the city’s parks, including its hiking trails.  Also, according to the City of Phoenix Parks and Recreation’s website, the mayor has decided unilaterally to temporarily close the city’s playgrounds, fitness equipment, basketball and volleyball courts, and sports complexes in its public parks effective Tuesday, March 31st at 5pm until further notice.

Being on a hiking trail in the Phoenix sun is one of the best ways to keep your body healthy.  Practice safe social distancing. Being outdoors is good for one’s health and wellness. It even states as much on Phoenix’s Parks and Recreation Department’s website. Be sure to call City Hall and let them know you want to keep our parks and hiking trails open during COVID-19.

Responding to Coronavirus without limiting freedom

The spread of the coronavirus has been rampant across the globe crippling countries like Italy, Iran, and South Korea where government-run institutions are the ones solely responsible for fighting the outbreak. But, luckily for residents of the United States, our nation operates a bit differently. Because our healthcare system adheres to free market principles, we have the ability to have private industry collaborate with the federal government to help combat the coronavirus which was categorized just last week by the World Health Organization (WHO) as a global pandemic.

Every day in America, researchers from biopharmaceutical companies are working endlessly to solve the world’s most sophisticated medical issues. As the global leader in medical innovation, the world looks to us in times of crisis. The reason being is our free market approach to healthcare has led to massive private investment and unprecedented funding for the research being carried out by the best and brightest scientific minds in the world who are incentivized to work right here in America.

Simply put, thanks to our private healthcare system that has resulted in decades of massive investment from biopharmaceutical companies, the U.S. is uniquely positioned to lead the charge against the coronavirus today and any other epidemic that may threaten our society tomorrow.

The irony of large scale epidemics like coronavirus is the clear realization of why we have the system that we do. Lamentably, several legislators on Capitol Hill have forgotten the importance of our free market approach both domestically and globally.

For example, just last year a bill led by Speaker Nancy Pelosi made its way through the House of Representatives that, if it becomes law, would decimate funding for new biopharmaceutical research and development. HR3, more commonly known as “The Lower Drug Costs Now Act”, would stifle future innovation by implementing socialist style government price controls on biopharmaceutical companies as a way to drive down high drug costs.

The adoption of government price controls in the pharmaceutical space is not only short-sighted but flat-out dangerous to public health. People often ask, “why do we pay more for drugs in the U.S. compared to other countries”, the answer is because we invest more in cures and treatments than any other country, and today, everyone should be very happy about that fact.

It’s terrifying to think what the coronavirus outbreak would look like if HR3 had passed 20 years ago. If we are to survive outbreaks and even outpace them, we must have our research teams working at full capacity at all times. In a world of uncertainty, there is no such thing as over-preparedness.

“Do No Harm” in the effort to lower drug costs

As we enter a new decade, advances in medicine hold the promise for a brighter future in the battle against deadly diseases like cancer.  Advances in immunotherapy and targeted gene therapy, for example, present opportunities not even imagined just few years ago.  The challenge for politicians and policy makers is to keep these life-saving advancements coming, while at the same time keeping them affordable for patients.

Getting this balance right is especially important to the large population of Seniors we have in Arizona.

Just 15 years ago a Republican Congress and President modernized Medicare by creating a prescription drug benefit called Medicare Part D.  Unlike other parts of Medicare, Part D was designed on the free-market principles of plan competition and senior choice.  Recognizing that one size does not fit all, every year Seniors have a choice of a variety of plans who compete vigorously for their business.  In order to keep their premiums low and attract Seniors to sign up, plans have a strong incentive to drive a hard bargain with drug manufacturers to keep prices down.

Affordable Drugs

It comes as no surprise to conservatives, that Part D’s free-market model has worked.  When the legislation was passed, the Congressional Budget Office estimated both the cost of the program to Medicare and the average monthly premium a Senior would pay, for the first 10 years of the program.  The actual results were remarkable. 

Medicare spending was 35-40% less than predicted and average monthly premiums projected to be $55 or more in 2016 are in fact only $32.70 in 2020 and that is a slight decrease from 2019.  In addition to these financial measure of success, Part D maintains a Senior Satisfaction Rate in excess of 90%, unheard of for most government programs.

Despite this success, big government advocates like Nancy Pelosi want undermine Medicare Part D and its sister program Medicare Advantage, by importing government price controls from socialist countries.  What is known as an International Pricing Index (IPI) is included in her signature drug pricing legislation which passed the House of Representatives last December. 

President Trump has correctly pointed out that many advanced economies around the world which have socialist health care systems are not paying their fair share of R&D costs for new drugs.  They are freeloading on American consumers.  But the answer is to stop these unfair trade practices, not import their socialist price fixing to the US!

Socialist health systems hold down cost by rationing drugs.  They either wait a long time to make new drugs available to their people, or they are never available.  Writing in Forbes in February 2020 author Doug Schoen points out that “roughly 96% of new cancer medicines are made available in the United States, while the 16 countries used in the International Pricing Index only have 55% of new cancer medicines.  Further, patients in these 16 countries also receive these medications on average 17 months after release, whereas in the United States, patients have almost immediate access to new cancer medicines following FDA approval”.

These cold statistics translate into patient’s lives.  An HIS Markit study published in 2018 “Comparing Health Outcome Due to Drug Access: A Model in Non-Small Cell Lung Cancer,” concludes that half of the gains in life expectancy we have made in fighting lung cancer, the number one cancer killer worldwide, would have been lost if the rationing policies found in Australia, Canada, France, South Korea and the United Kingdom were replicated in the US.”

Government price controls on drugs are not the answer.  But neither is doing nothing.  Fortunately, Senator Mike Crapo (R-Idaho) and Congressman Greg Walden (R-Oregon 2) have introduced legislation to help. 

Their legislation, S. 3129 and H.R. 19, preserve the free-market competition which has worked so well in both Medicare Part D and Medicare Advantage, but directs that more of the savings from negotiations with drug manufacturers flow directly to the consumer at the pharmacy counter in the form of immediate discounts.  They also cap the annual out-of-pocket spending Seniors must pay for prescription drugs. 

The legislation also takes steps to reduce the freeloading of other developed nations on our R&D and streamlines coordination between the Food and Drug Administration (FDA) and Medicare to insure that new treatment reach Seniors as quickly as possible.

Doctors take an oath, “First, do no harm.”  That’s good advice for politicians and policy makers as well.  Taking steps to lower drug costs to Seniors is important.  But we must do it the right way or we will harm those we are trying to help.

Rural Arizona Doesn’t Need Surprises on Mental Health Care Access

By Timothy Alan

Each year, I plunge into the wilderness for weeks at a time. The experience is a salve for my mental outlook. “Getting away from it all” is an effective wellness strategy. But it’s important to remember, serious issues like depression, anxiety, post-traumatic stress, and substance abuse disorders do not resolve themselves with a temporary escape.

Treatment is essential. Unfortunately, in rural Arizona, mental health services can be incredibly hard to come by—and sadly, help could soon become even more difficult to access.

That’s because new legislation in Congress could worsen our state’s already severe shortage of mental health professionals. Elected leaders in Washington are moving rapidly on a plan to add price controls to the health care market. The proposal was crafted to relieve families of the risk of large, surprise medical bills for out-of-network health care services, but legislators’ good intentions cannot erase the detrimental consequences they would engender by enacting this law.

Price controls on any market are a recipe for shortages. When applied to food, the result was the bread lines of the former Soviet Union. When used on medicines, price controls contributed to the violent upheavals in Venezuela. If we add price controls to America’s health care system, including many behavioral health services, similar outcomes will follow.

This is unacceptable. Already more than 2.8 million Arizonans live in areas with too few mental health professionals. Our state is meeting less than 12 percent of the existing need for behavioral health services and would require nearly 200 more practitioners to catch up.[1] We won’t attract them if we have price controls.

I deliver wilderness-based therapeutic care for troubled teens and youth, and I can tell you, most of my clients with mental health challenges struggle to get help. A lack of psychiatrists and other providers is a problem we share with small towns, frontier regions, and remote communities across the nation, and it is putting our children in jeopardy. In fact, the suicide rate for young people in rural areas is almost twice as high as in urban regions.[2]

Without sufficient mental health experts, rural hospitals and clinics cannot provide life-saving emergency and inpatient psychiatric care for patients in imminent danger. And because the prognosis for mental illness improves with early treatment, our inability to direct behavioral health services to children, teens, and young adults condemns too many residents to more severe illness than they’d likely have suffered with more timely intervention.

Although my focus is on mental health, the effects of federal price control legislation would extend much farther into the health care system. Rural patients would be less able to access air ambulances to speed them to urgently needed care. The number of specialists, from heart doctors to trauma surgeons, would plummet from already low numbers. Patients would have to travel great distances for care, and non-critical cases would be shunted aside until a patient’s situation reaches crisis levels.

These outcomes are as predictable as they are life-threatening. Price controls never turn out any differently. It’s unclear how our elected leaders stumbled so far off course in their efforts to address health care affordability, but they need to return to their senses and protect—not endanger—Arizonans’ access to care.

Timothy Alan is a behavioral health specialist with ANASAZI.

[1] https://www.kff.org/other/state-indicator/mental-health-care-health-professional-shortage-areas-hpsas/?currentTimeframe=0&selectedRows=%7B%22states%22:%7B%22arizona%22:%7B%7D%7D%7D&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

[2] https://www.washingtonpost.com/news/to-your-health/wp/2015/03/09/the-suicide-rate-for-young-people-is-much-higher-in-rural-areas/

Arizona Conservatives bash FDA for regulatory assault on e-cigarettes

Arizona’s own Goldwater institute has joined a number of center-right leaders in urging Trump’s FDA to stop government overreach into personal health decisions. The coalition is calling a proposed crackdown on e-cigarettes a regulatory assault. Conservative groups nationwide are calling on President Trump to halt FDA commissioner Gottlieb’s panic driven regulatory action.

“FDA Commissioner Scott Gottlieb’s effort to curb the $6.6 billion electronic cigarette industry and an even larger reduced risk tobacco alternatives market is inconsistent with your clearly articulated deregulatory objectives and will destroy jobs, limit consumer freedoms, and harm public health.  

This week, a Washington Post op-ed bashed the FDA over its recent crackdown on vaping and e cigarettes

As the column noted, “Last week, a large trial published in the New England Journal of Medicine and led by British researchers showed people trying to quit cigarettes were almost twice as likely to succeed if they used e-cigarettes instead of conventional nicotine-replacement therapies such as patches and gum.”

Nevertheless, FDA commissioner Gottlieb shows no sign of backing down. In an interview Sunday, he said that while the FDA supports the role of e-cigarettes in helping adults quit smoking, “it’s now clear that widespread and sometimes reckless marketing of these products has come at the expense of addicting a new generation of kids on tobacco.”

This is irresponsible at best, and completely inaccurate. Vaping technology is not marketed to kids, and is a great resource for adults who wish to quit smoking.

The letter to President Trump was signed by more than a dozen conservative groups, including Arizona’s Goldwater Institute, ALEC action, Americans for Tax Reform among others. A copy of the letter can be read here.

Martha McSally Making A Difference to Fix Failed Healthcare

By Southern Arizona Sam

Martha McSallyThe so-called “Affordable Care Act,” better known as Obamacare, has been a disaster any way you look at it.

First, it promised to bring down the cost of healthcare for middle class Americans. Wrong: premiums and other out of pocket costs continue to sore.

Second, President Obama promised people that if they liked their healthcare or their doctors, they could keep them. As we all know that has proven to be false as well.

As with most complicated federal programs, Obamacare created more red tape, more bureaucracy, created higher costs, and created shrinking healthcare options. With less competition, costs seem poised to sky rocket even further.

The political facts demonstrate that the American people, and certainly Arizonans, are opposed to Obamacare. First, in 2010, Republicans took the majority of the House in one of the largest electoral shifts in American history. Then in 2014, they reclaimed the Senate. Both did so on a platform of fixing, repealing, or replacing Obamacare.

With just weeks to go before the 2016 Presidential election, in states like Arizona, many people received notice that they were going to lose their healthcare in 2017. The plan simply didn’t work for many insurance companies and doctors. Obamacare promised coverage and yet many Arizonan’s were two months away from losing coverage.

The new Republican healthcare alternative has had its detractors but here are the facts about the bill.

  1. It will create more competition in the marketplace. This will give consumers more options and lower costs.
  2. It will allow people with pre-existing conditions to have healthcare.
  3. It will provide a stable transition so that people can keep coverage as they move to the new plan.

In Arizona, we should applaud Congresswoman Martha McSally, Congressmen Trent Franks, Paul Gosar, and David Schweikert for supporting this bill. It is a promise kept to voters and shows a real recognition that the current healthcare system is unsustainable and unworthy of the greatest nation in the world.

Congresswoman McSally should garner special mention for her leadership. She is getting criticized for her vote but she is doing what she promised the voters she would do. She also fought for the interests of ALL Americans by adding an amendment to eliminate healthcare exemptions for members of Congress. 

We should be very proud of our Congresswoman McSally and those Republicans who stood up for lower health care costs for all Arizonans. We applaud her service to her constituents.