Photo by Ante Samarzija on Unsplash

President Biden’s Fiscal Year 2024 budget proposal includes an expansion of Democrats’ drug price controls, originally passed in the so-called “Inflation Reduction Act (IRA).”

The consequences of this policy have already been revealed through the numerous drug manufacturers who have officially ended drug-development programs, citing new price controls. The expected consequences when these price controls go into effect are even more bleak: they will generate a loss of 331.5 million life years in the U.S. and increase, not decrease, health costs. Any expansion of these awful policies would be disastrous.

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 percent 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.

Even before their implementation, the price controls on medicine in the IRA are inhibiting medical innovation.

Because of Democrats’ new price controls, several drug manufacturers have ended drug-development programs for vital medicines or warned that they soon would 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.

Of course, expanding existing provisions would further exacerbate disincentives to innovate.

Drug price controls will cost lives.

In the same vein, a lack of innovation in medicine will lead to the absence of drugs which would have saved and/or preserved life.

Worse, the treatments that manufacturers will be discouraged from making will be highly effective ones that treat common, but serious, ailments. After all, these are the drugs price setters will deem most important to take control over. In this way, price controls will disproportionately discourage the innovations humankind needs most. 

For example, one recent study found that these 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. Tomas J. Philipson and Troy Durie out of UChicago concluded that these price controls would lead to 135 fewer new drugs, generating “a loss of 331.5 million life years in the U.S., 31 times as large as the 10.7 million life years lost from COVID-19 in the US to date.”

How many more millions of life years would Americans lose under the Biden administration’s proposed expansion?

Price controls could end up raising health costs, not decreasing them.

Democrats’ price controls on medicine – part of their latest iteration of reconciliation – will not decrease costs, as Democrats claim. In fact, it will actually increase health spending by $50.8 billion, one recent study shows. The study was conducted by Tomas J. Philipson and Giuseppe Di Cera out of the University of Chicago.  

While these provisions are supposed to raise around $101.8 billion over ten years, the study estimates that total health care spending would actually increase by $50.8 billion over a 20-year period. 

In short, pharmaceutical treatments tend to alleviate the need for more expensive interventions like surgeries and hospitalizations. In this way, the introduction of more medicines reduces money spent on costlier interventions, thus reducing total health spending. Because Democrats’ bill discourages the flow of new medicines, it will increase total health spending.  

Democrats’ price controls are already discouraging medical innovation and are predicted to cost lives and increase health costs. It’s hard to imagine how much more disastrous an expansion of these policies would be.