Veterans Affairs Prescription Drug Price ‘Negotiation’ Amounts to Price Controls, Los Angeles Times Opinion Piece Says

Some consider the purchase of prescription drugs by the Department of Veterans Affairs a "negotiation" with pharmaceutical companies, but "really what is going on ... is something that does not sound quite as appealing: price controls," Benjamin Zycher, a senior fellow in economics at the Pacific Research Institute, writes in a Los Angeles Times opinion piece. Zycher writes that the use of the term "negotiation" to describe the practice "obscures the harsh reality that price controls are being sought and shunts aside the adverse long-term consequences of such policies," such as reduced research and development on new medications.

According to Zycher, pharmaceutical companies face price controls under the 1992 Veterans Health Care Act, which mandated a minimum 24% discount on the "non-federal average manufacturer price" of medications and established the Federal Supply Schedule, which requires pharmaceutical companies to sell treatments to VA at the "best price" offered to private-sector purchasers. Pharmaceutical companies "play by the government's rules because they can't afford the loss of a significant portion of their sales, even at controlled prices," Zycher writes.

In addition, despite "casual assertions" that pharmaceutical companies make "huge profits," the "truth is that pharmaceutical companies face enormous research and development costs," regulatory issues, patent expirations and liability risks, Zycher writes. He adds, "Policies must be developed to end the free ride that foreign pharmaceutical consumers -- particularly in wealthy economies like those of Canada and Europe -- now receive" and to ensure that the United States does not "mortgage the future in favor of the present, with greater human suffering the inexorable outcome" (Zycher, Los Angeles Times, 1/21).