President Biden’s Fiscal Year 2024 budget proposal includes an expansion of Democrats’ drug price controls, originally passed in the “Inflation Reduction Act” (IRA). This policy shows an utter disregard for the importance of medical innovation. After all, the cost of stunting innovation in medicine is the loss of human life.
The IRA gave the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. In reality, the Secretary is given the power to simply determine the price he or she deems acceptable and impose a steep tax of up to 95% on companies who charge more. Under current law, in 2023, the Secretary will be able to determine the prices of 10 prescription drugs. The determined price will go into effect in 2026. The number of drugs the HHS Secretary could set prices for will increase to 15 in 2028 and 20 in 2029.
Biden’s new proposal would expand this policy by setting prices for even more drugs and bringing drugs into “negotiation” sooner after they launch.
Inevitably, if drug manufacturers are threatened with the inability to recoup the money they spent on research and development, they will cease—or never begin—the development of new drugs.
Even before an expansion, Democrats’ price controls are expected to generate a loss of 331.5 million life years in the U.S. It’s hard to imagine how many millions more life years would be lost under an expansion of this disastrous policy.
One study, conducted by Tomas J. Philipson and Giuseppe Di Cera out of the University of Chicago, details how the IRA’s price control provisions will lower R&D activity, thus lowering the amount of new drugs created, resulting in loss of life:
A large academic literature estimates the effect of future drug revenues on R&D spending and finds that on average that a 1 percent reduction in revenue leads to a 1.5 percent reduction in R&D activity. We find that HR 5376 will reduce revenues by 12.0 percent through 2039 and therefore that the evidence base predicts that R&D spending will fall about 18.5 percent, amounting to $663 billion. We find that this cut in R&D activity leads to 135 fewer new drugs. This drop in new drugs is predicted to generate a loss of 331.5 million life years in the US, 31 times as large as the 10.7 million life years lost from COVID-19 in the US to date.
Similarly, another study found that the IRA’s price controls will kill $18.1 billion in annual spending on cancer R&D, wiping out nearly a third of the current annual spending on this research.
As already mentioned, the price controls don’t actually go into effect until 2026, and the HHS has not made any decisions about which drugs they will bring into “negotiation.” Still, as detailed by Americans for Tax Reform, the chilling effect of price controls have already caused drug manufacturers to end drug-development programs and/or warn that they would soon have to:
- “Eli Lilly CEO Officer Dave Ricks said the company had already dropped a blood cancer drug from its pipeline because they “couldn’t make the math work.” He explained that, “In light of the Inflation Reduction Act, this program no longer met our threshold for continued investment.”
- Alnylam has suspended its development of a treatment for Stargardt disease, a rare eye disorder, explaining that the company needs “to evaluate impact of the Inflation Reduction Act.”
- Bristol Myers Squibb CEO Giovanni Caforio said that the company expects to halt its funding to certain drugs because of Democrats’ price controls.
- AstraZeneca said that it would be making dramatic changes to its R&D strategies due to the new law. Specifically, it will have to delay the United States’ access to new drugs.
- Novartis, a Swiss drugmaker, warned that the new law could discourage research in its most promising areas of research: RNA, radioligands, etc.”
Even if drug manufacturers go through with development, there’s no guarantee that they’d offer the new medicines in the U.S. under the threat of price setting.
Compared to foreign countries who already impose price controls, the U.S. has far better access to treatments and cures. According to research by the Galen Institute, 290 new medical substances were launched worldwide between 2011 and 2018. The U.S. had access to 90% of these cures. By comparison, the United Kingdom had access to 60% of medicines, Japan had 50%, and Canada had just 44%. Democrats seem bent on subjecting American citizens to similar access problems.
This expansion of an already disastrous policy, and the Left’s ultimate goal of setting prices for all medicines, will cost lives, not save them.