News Release

November 30, 2005

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Avoiding Medicare's Pharmaceutical Trap
Study argues repeal of Medicare Rx program necessary to save lives

WASHINGTON - The Medicare drug benefit has set a dangerous trap, warns a new Cato Institute study. The enormous tax burden required to fund the drug benefit will forever pressure Washington to impose price controls on prescription drugs.

However, price controls imposed on pharmaceuticals can be detrimental, argues Cato senior fellow Doug Bandow in "Avoiding Medicare's Pharmaceutical Trap." "Existing federal price controls have already cost Americans an estimated 140 million life-years," Bandow writes.

Placing a government cap on drug prices will reduce incentives to invest in pharmaceutical research and development (R&D), which would lead to fewer new therapies and lower-quality medical care. Bandow argues, "Applying these controls to Medicare purchasing would eliminate approximately 40 percent of all future pharmaceutical R&D and cost another 277 million life-years." According to Bandow, "That's like saying that everyone currently under age 65 should die one year sooner so seniors can save some money on their drug bills."

Rather than attempt to control drug prices, Bandow advocates repealing the Medicare drug program and allowing market competition to keep drug prices down. "Washington should pressure other nations to lift their price controls, enact reforms that would make patients more careful drug purchasers, and reform the federal Food and Drug Administration to reduce unnecessary regulatory costs and enhance competition among drug makers," Bandow suggests.

Policy Analysis: http://www.cato.org/pub_display.php?pub_id=5219

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