Sally Pipes of the Pacific Research Institute makes the case that Governor Arnold Schwarzenegger's new drug plan is bad for Californian patients. By imposing "voluntary" price controls on the industry, Pipes contends that Schwarzenegger's plan will stunt research and development of new medical advances that help to save thousands of lives every year.
In other words, Gov. Schwarzenegger wants the State of California to do what is illegal for pharmaceutical companies to do—fix prices. His plan might make sense if government price controls actually worked. But in reality, they almost always have the exact opposite of their intended effect.
In the case of the Prescription Drug Initiative, pharmaceutical companies would need to compensate for the forced discounts by raising prices on people who don't qualify.
A family of four with a household income of $70,000 and a child with cancer might see its drug bills increase to offset discounts on hyperactivity medicines available to a family making $68,000.
Over the long term, Gov. Schwarzenegger's price controls would have an even more perverse effect. They would lead to fewer new medicines, particularly if other states follow California's example.
Today, it costs between $800 million and $1 billion to bring a new drug to market. Cancer patients have hope precisely because companies are willing to risk that money in developing drugs like Avastin, Erbitux, Gleevec, Herceptin, Nexavar, Sutent, and many others.
Ironically, if Gov. Schwarzenegger's plan had been implemented across the country 25 years ago, very few of these drugs would have been invented in the first place. There would be no life–saving medicines to discount.
If state governments make breakthrough drugs unprofitable, companies will simply stop trying to invent them. Researchers at the University of Connecticut's Center for Healthcare and Insurance Studies found that, since 1960, government interference in drug pricing caused $188 billion in lost spending on research and development. The "lost" medicines that might have been developed with that money could have saved 140 million life years.