Investor's Business Daily, September 14, 2009
National Center for Policy Analysis, September 16, 2009

For several months now, Senate Finance Committee Chairman Max Baucus, D-Mont., has been drafting a health reform bill with a bipartisan group of three Republicans and three Democrats designed to garner support from both parties.

Just in time for President Obama's address to Congress, some key points in the forthcoming bill were unveiled. The final bill is expected to be released this week. Unfortunately, it features a number of provisions that would hamstring medical innovation.

Baucus' overhaul would be partially funded by new fees on the health care industry. Starting next year, medical device makers would be forced to pony up $4 billion annually to the federal government. Biopharmaceutical firms would be on the hook for $2.3 billion each year. Clinical labs would have to shell out $750 million a year. All this in addition to the taxes they already pay.

Cutting Drug R&D

To put this in perspective, it takes $1.3 billion, on average, to research, develop and bring a new drug to market. So the bill would siphon away money that could otherwise have launched two new medicines.

With less money for research, cutting-edge drugs already in the pipeline undoubtedly will take longer to get to market. And whole lines of research aimed at curing diseases that currently lack treatments could be delayed or even canceled.

It doesn't stop there. Under Baucus' bill, the government would start demanding a discount of 23.1% — up from 15.1% — on all brand-name drugs purchased by Medicaid, the government program for low-income Americans. This too cuts funds for research and development of new medicines.

Higher Taxes

New medicines depend on investment. As biopharmaceutical firms and device companies become less profitable, investors will surely flee for other sectors of the economy.

These new taxes wouldn't just stymie medical innovation; they would also work against one of the central objectives of health care reform: lowering medical costs. By obviating the need for prolonged hospital stays and expensive surgeries, pharmaceuticals actually reduce medical spending.

A 2005 study published in Medical Care found that every additional dollar spent on drugs for blood pressure, cholesterol, and diabetes shaves $4 to $7 off other medical spending.

Similarly, a recent paper from the National Bureau of Economic Research found that Medicare ultimately saves $2.06 for every dollar it spends on prescription drugs.

This makes sense. A daily cholesterol-lowering pill is cheaper than emergency heart surgery.

The health reform envisioned by Sen. Baucus, President Obama and most Democrats will require a great deal of money. Taxes will have to increase for all Americans, care will be rationed and ultimately the quality of our health care will decline. And for some strange reason, they'd like to fund their effort by undermining medical innovation.

Achieving meaningful health reform doesn't necessitate spending hundreds of billions of dollars and shaking down innovative industries. Lawmakers could deliver coverage to more people and cut costs simply by championing market-based reforms.

Let Patients Decide

For instance, lawmakers could vastly expand access to coverage by giving individuals the same tax benefits that businesses enjoy when purchasing health insurance. Washington could also institute a refundable tax credit for individuals purchasing their own insurance. Such reforms would put more decisions in the hands of patients and preserve the medical innovation that allows us to live longer and healthier lives.