Rube Goldberg scheme threatens drug industry — and our health

Raymond Keating
Raymond Keating

When government steps in with a massive regulatory scheme to control prices in an industry, the effort equates to a Rube Goldberg machine — that is, a way of doing something in an unnecessarily complicated way.

Imposing Rube Goldberg price controls on the pharmaceutical industry means lives will be diminished and lost. After all, the pharmaceutical industry produces drugs, medicines and vaccines that improve and save lives. But when government seeks to inflict price controls, it’s effectively limiting potential returns on innovative endeavors in the areas of drugs, medicines and vaccines fraught with high costs, uncertainty and risk.

Keep in mind that due in part to strong property rights and not imposing price controls, the United States is a global leader in pharmaceutical development and innovation. While creating new and improved drugs, medicines and vaccines are costly and complex endeavors in and of themselves, the policy framework for incentivizing these vital undertakings should remain straightforward and simple.

That policy framework should be low taxes, a light regulatory touch and a strong system for protecting property rights through patents. If elected officials are concerned about affordability for certain segments of society, then that policy choice should be dealt with directly. While any kind of consumer subsidies along those lines would come with their own costs and consequences, they wouldn’t carry the broad negatives for entrepreneurship, investment and innovation in the pharmaceutical industry — and resulting negatives for patients — price controls would.

But rather than keep policy straightforward and aligned with common sense and sound economics, assorted elected officials —  among then President Joe Biden and many Democrats in Congress — continue to push for price controls.

In true Rube Goldberg fashion, the latest scheme would have the process of price controls getting under way via Medicare, with the Department of Health and Human Services secretary ranking drugs according to the amount spent and setting a maximum price on at least the top 20 based on an assortment of criteria and for varying lengths of time. For good measure, manufacturers refusing government price dictates would face a
95 percent tax on revenues from the targeted drug. An inflationary rebate penalty would be imposed on price increases on drugs exceeding the rate of inflation — another form of price controls.

It’s all rather ridiculous, although with tragic consequences.

Elected officials have long sought to inflict price control schemes on an industry that improves and saves lives by producing drugs, medicines and vaccines — while also reducing overall medical care expenditures since drugs eliminate the need for more costly treatments. One would hope the realities of what drug makers accomplished during the COVID-19 pandemic — producing vaccines in a near-miraculous period of time — would at least give pause to the drive for price controls. But that’s not the case.

And make no mistake, the latest Rube Goldberg price control scheme would build the regulatory infrastructure for the inevitable expansion of price controls. Indeed, this would only be the first step in the march to widespread price controls. Investors certainly understand this fact, and entrepreneurship would suffer in the industry.

The pharmaceutical manufacturing sector of the U.S. economy is about smaller businesses with 59.4 percent of employer firms having fewer than 20 employees,
78.9 percent fewer than 100 employees and 91.3 percent fewer than 500 employees.

The traditional idea of a Rube Goldberg machine is the machine would produce the same product via its chain reaction complex process. But when it comes to the Rube Goldberg regulatory scheme of price controls on prescription drugs, medicines and vaccines, the results would turn out quite differently. Price controls not only create unnecessary complexity, but among its consequences are reduced incentives for entrepreneurship, investment and innovation in the prescription drug industry; lost competitive advantages for U.S. firms; fewer high-paying jobs in the industry; and, most tragically, diminished patient care, including more deaths.

In sum, price controls are a bad idea and ideal political tool for undermining the production of new and improved drugs, medicines and vaccines.

Raymond Keating is chief economist for the Small Business & Entrepreneurship Council. For more information, log on to