Here’s How The Inflation Reduction Act Breaks The Prescription Drug Pipeline
The pharmaceutical innovation pipeline, which recently delivered the life-saving Covid-19 vaccines in record time, may be irrevocably broken.
The so-called Inflation Reduction Act, which passed the Senate on Sunday and House of Representatives on Friday, allows the government for the first time to enact price controls on some prescription drugs in Medicare. President Joe Biden signed the act into law Tuesday.
Artificially lowering prescription drug prices by government fiat will reduce the revenues needed to fund the next generation of cures.
The dynamic U.S. prescription drug industry has helped Americans live longer and healthier lives. New medications are responsible for around half the increase in U.S. life expectancy over the past 30 years.
The IRA’s price controls threaten this progress. They effectively transfer nearly $300 billion from the productive pharmaceutical industry to the unproductive green energy complex. This wealth transfer will meaningfully reduce the nearly $100 billion, or about 28% of revenues, drugmakers spend yearly on research and development.
The nonpartisan Congressional Budget Office projects this bill will result in 15 fewer medications arriving on the market. But this is almost certainly an underestimate. “I would be shocked if the impact of this bill doesn’t result in 15 fewer medicines from Eli Lilly and Company alone,” said Eli Lilly CEO David Ricks. “Right now, 40% of our portfolio are small molecules. We’ll need to reevaluate every single one of those projects for viability.”
According to one consulting firm, the 12 drug companies responsible for the 20 medications likely to be subject to price controls will lose more than $80 billion of revenues as a result of this legislation. Price controls, no matter the industry — from energy to real estate to prescription drugs, scare away needed investments and ultimately hurt consumers. Capital is flighty and demands a return on investment.
The kicker here is that price controls are a solution in search of a problem. For all the talk of “skyrocketing” drug prices, costs have actually fallen over the last few years when drug rebates and other concessions are considered. Yet patients often don’t see these price declines at the pharmacy counter because rebates are diverted by distortionary prescription drug middlemen known as pharmacy benefit managers.
As I explained recently in the Wall Street Journal, one of the best indications of medication price deflation is the low costs at the new Cost Plus Drug Company, which obviates inflationary drug-supply-chain middlemen such as pharmacy-benefit managers.
A better way to make medications more affordable while protecting the innovation pipeline is by reforming this rebate system to direct rebate savings straight to patients. A Health and Human Services rule finalized in November of 2020 did exactly this. But in an added insult to patients, the IRA effectively scraps this rule so it can redirect the savings meant for patients to pay for climate activism.
Finally, it’s not at all clear that price controls will save patients or the healthcare system money. To the extent medications keep patients out of expensive hospitals, they reduce rather than grow health expenditures. Medicines only account for 12% of U.S. healthcare spending, but they save the system far more in reduced hospitalizations.
Consider, for instance, how the recent Hepatitis C cure has prevented thousands of enormously expensive liver transplants. Or how Covid-19 vaccines prevented hundreds of thousands of extended hospitalizations. Fewer new medications, as projected by the CBO and numerous independent scholars, therefore likely mean higher costs over the long term.
Drug companies will also try to recoup price control-induced losses in Medicare by raising their prices in the commercial market. They will likely follow the same playbook as hospitals, which overcharge commercial patients to make up for artificially low Medicare prices.
Prescription drug price controls in this new legislation are a massive risk for little-to-no reward. They will result in fewer cures and treatments for rare diseases you’ve never heard of. They will set back progress in the fight against Alzheimer’s, Parkinson’s, and cancer. And they will slow vaccine development when the next pandemic comes.
Tom Price, a former secretary of Health and Human Services and a former member of Congress, is a senior healthcare policy fellow at the Job Creators Network.
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Anything Biden touches he screws up as he will with this. But the statement made in this article below is pure BS, those of us seniors dealing with this everyday know it.
“The kicker here is that price controls are a solution in search of a problem. For all the talk of “skyrocketing” drug prices, costs have actually fallen over the last few years when drug rebates and other concessions are considered”