Government price controls can't fix health care

National healthcare spending hit a record high of $2.2 trillion in 2007, according to a report just released by the government. The total accounts for over 16 percent of the nation's GDP, and averages out to a $7,421 bill for each one of us.

These numbers are staggering. President-elect Barack Obama and his Secretary of Health and Human Services nominee, Tom Daschle, need to take immediate steps to make sure the money we spend delivers the healthcare we need.

Unfortunately, many of the incoming administration's reform proposals, although well-intentioned, boil down to a single, destructive policy: Price controls.

History shows that price controls usually result in severe shortages. This is no less true when it comes to the healthcare sector. Take, for example, Obama's plan to allow public insurance programs to directly negotiate drug prices with pharmaceutical  ompanies.

The Medicare Part D drug benefit was created in 2003 to subsidize prescription drug purchases for Medicare beneficiaries.  Many politicians, including Obama and Daschle, have taken issue with Part D's "non-interference clause," which prohibits the government from influencing drug prices.

As anyone who's ever run a business can tell you, prices aren't arbitrary. In the drug market, sellers must strike a balance between setting a price that is affordable for those who need the medicine most, and making enough profit to fund research into future medicines.

It costs around $1 billion to develop a new medicine in the United States. If Congress makes drug companies sell their products at below-market prices, funding for research and development will plummet. This poses a serious threat to the future of medical innovation.

And for those suffering from diseases that currently lack satisfactory drug treatments, like Lou Gehrig's disease or Diabetic neuropathy, drying up R&D funding would remove all hope of ever being cured.

The new administration is also likely to institute price controls on pharmaceuticals by allowing "the importation of safe medicines from other developed countries," as President-elect Obama has put it.

Some see repealing the ban on drug importation as a way to reduce healthcare spending since many brand-name drugs are available at lower prices in countries like Canada and the UK.

But drugs from abroad are cheaper mainly because other countries have rigidly enforced pharmaceutical price controls. Legalizing importation would essentially allow Americans to import other countries' wrongheaded economic policies, and siphon funds away from needed medical research.

The purported benefit of drug importation -- cost savings -- is negligible, at best. According to the Congressional Budget Office, repealing the ban on drug importation would only lower healthcare spending by less than one percent.

But perhaps the most damaging healthcare reform we are likely to see in the coming years is Secretary Daschle's plan for a Federal Health Board. Based loosely on Great Britain's National Institute for Health and Clinical Excellence (NICE), this new body would evaluate the effectiveness of different medical treatments with the aim of removing waste from the healthcare system.

Daschle has said that the agency will "reduce or deny payment for new drugs and procedures that aren't as effective as current ones." In the past, however, agencies like NICE have unfairly denied treatment to patients by applying a broad definition of "effective."

Just look at what happened last year when NICE decided that the arthritis drug abatacept was too costly to cover. Despite the fact that the drug is one of the only treatment options for some arthritis sufferers, the NICE denied it to tens of thousands of British patients for purely economic reasons.

Similar rationing will likely take place under Daschle's proposed Federal Health Board, especially considering that, like the Federal Reserve, it will be an independent body, immune from the kinds of political pressures that keep over-eager regulators in check.

This healthcare effectiveness agency is another example of how the Obama administration could put the health of millions of Americans at risk in order to save the government a little money.

President-elect Obama's determination to reduce healthcare spending is commendable. But price controls aren't the answer. Reforms shouldn't threaten the world's supply of medicines or patient access to high quality healthcare.

Peter J. Pitts is president of the Center for Medicine in the Public Interest and a former FDA Associate Commissioner.