The High Cost of Democrats’ Drug Price Controls

Today, the Energy and Commerce’s Oversight and Investigations Subcommittee will hold a hearing entitled, “At What Cost: Oversight of How the IRA’s Price Setting Scheme Means Fewer Cures for Patients.”

During this hearing, lawmakers will have the opportunity to highlight just how destructive Democrats’ price controls on medicines have been and will be.

In addition to other burdensome changes to Medicare, the IRA gave the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. This policy was a primary source of revenue for the bill.

In reality, the bill gives the Secretary 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. Starting in 2026, 10 drugs will be subject to price controls under Medicare. Roughly 16 percent of Medicare enrollees used these selected drugs in the last year.

The IRA’s price setting scheme will cost lives by disincentivizing innovation, its “benefits” (i.e., Medicare savings) will pay for green energy subsidies instead of lowering costs for enrollees, and Americans generally distrust the government to set prices.

IRA Price Controls Will Hurt Innovation, Costing Lives

While the idea of simply “lowering prescription drug costs” through blunt force can be attractive, behind each of the drugs subject to price controls are companies that do vital work in medical innovation. When extorted by the U.S. government, they will have to make up lost costs elsewhere.

As noted, this law discourages new medical innovation – a consequence that will have the furthest-reaching effects. This is because it increases the financial risk companies take on when they start to develop new drugs. Under this law, they may never recoup the amount of money they put into R&D. Notably, in an industry like drug development, the risk is already very high.

During an average drug development process, a manufacturer must invest an average of $2.6 billion and spend 11.5 to 15 years in research and development. Even so, most drug development programs fail.

As detailed by Stephen Ezell of the Information Technology & Innovation Foundation (ITIF), as little as 0.05 percent of drugs make it from drug discovery to clinical trials. Of the few medicines that make it to clinical testing, only about 12 percent of medicines that begin clinical trials are approved for introduction by the FDA. Even if a drug is approved, it is likely that the profits from said drug will not recoup its R&D costs. One study in the Health Economics journal found that 80 percent of new drugs made less than their capitalized R&D costs.

Needless to say, starting a new drug program is, statistically, an almost guaranteed financial loss for drug manufacturers. Now, even if their drug is highly effective and popular, companies risk their prices being capped by the federal government.

Even before implementation, several drug manufacturers have already warned of development programs they had to end or will likely have to end, including Eli Lilly, Alnylam, Bristol Myers Squibb, AstraZeneca, Novartis, Sage Therapeutics, Amgen, etc.

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 so drastically that it will result in 135 fewer new drugs, generating a loss of 331.5 million life years in the United States, more lost life years than the first two years of the coronavirus pandemic.

The loss in R&D spending on cancer treatments alone will total $18.1 billion annually, wiping out nearly a third of the current annual spending on this research. This is particularly ironic given President Biden’s alleged goal to eradicate cancer through his “Cancer Moonshot” program.

Without giving any thought to the consequences or tradeoffs of “just making companies charge less for drugs,” the Biden Administration will be responsible for an abhorrent loss of life because of its policies.

Medicare Savings in IRA Will Go Towards Green Energy Subsidies Instead of Seniors

Instead of taking the savings from the IRA’s Medicare reforms and putting it towards lowering costs for seniors or preventing looming insolvency, the savings were spent benefiting wealthy Americans through green energy tax credits.

The senior-subsidized green energy provisions include a $7,500 tax credit for luxury electric vehicles, a $4,000 previously-owned electric vehicle credit, an annual $1,200 credit for “energy efficient” doors and windows, and more.

As Mark Merritt explains in the Wall Street Journal, “the program’s costs are projected to spiral from about $1 trillion this year to $1.8 trillion in 2031,” negating any deficit reduction supposedly designed to reduce inflation through the law.

At a time when Medicare is set to become insolvent and its enrollees, on average, earn less than $30,000 a year, roughly $280 billion in savings from the bill’s Medicare prescription drug provisions went to these green energy handouts.

According to a new poll by HarrisX, 80 percent of registered voters say any Medicare savings from these caps should be applied to lower users’ prescription drug costs before being made available for unrelated tax credits, such as green tax credits.

Americans Do Not Trust the Government’s Ability to Set Drug Prices

Rightfully so, there is a clear trust deficit with voters over the government’s ability to set prices for drug costs and lower out-of-pocket expenses. As detailed by HarrisX:

• A plurality of registered voters (40 percent) distrust the federal government to decide the price of prescription drugs, so that Americans will actually see lower prices at the counter.
• Over 3 in 5 Republicans distrust the federal government to set prices.
• A plurality of Independents distrust the government’s ability to set prices (38 percent).