Newly enacted government price controls aren’t even implemented yet, but they’re already having an effect. But instead of forcing down the prices of the highest priced (i.e., most valuable) brand medicines, price controls in the so-called “Inflation Reduction Act” are reducing biomedical innovation.
Pharmaceutical companies have begun to close lines of drug development because they would be subject to the IRA’s drug price controls, where Health and Human Services bureaucrats dictate the price HHS will pay for the drug—on a take-it-or-leave-it basis.
The IRA uses the euphemistic term “negotiation” of the government’s price for certain highly valuable medicines. The “negotiation,” which kicks in in 2026, initially applies to a limited number of drugs, though its reach balloons thereafter. For a drug targeted for this type of price control, the government-dictated price will be the price.
Another, equally nefarious government price-setting measure in IRA is a 95% excise tax on total revenues of a drug’s sales to Medicare. This punitive tax will apply to a biopharma innovator who doesn’t accept the “negotiated” rate.
The confiscatory tax also applies to drugs whose price increases higher than inflation. HHS reports that the list price of more than 1,200 medicines rose above the inflation rate from July 2021 to July 2022. They’ll soon face the 95% tax.
Yet another government price control in IRA is a $35 Medicare copay cap for insulin. Sen. Raphael Warnock, the Georgia Democrat facing a tight runoff election, has cajoled and harangued this to death. The leftist demagogue and many of his colleagues make it sound as though exorbitant out-of-pocket expense for insulin is rampant, though only one in five privately insured individuals pays more than $35, the uninsured having the biggest insulin bills.
Warnock has company in New Hampshire Democrat Sen. Jeanne Shaheen and Maine Republican Susan Collins proposing to expand the IRA insulin price cap, even to private insurance. These politicians favor writing insulin’s copay into law, though the out-of-pocket price of insulin has been falling, helped by generic competition.
The true price of these price controls is fewer new medicines. Innovation, such as pharmaceutical breakthroughs, typically have higher up-front costs with lower overall costs and better benefits over time. Policies that treat high-value inventions like mere commodities disrupt this innovation-centric pattern.
That is, price controls and other government restriction on private property rights and free enterprise deprive the members of society of the kinds of substantial, positive effects and steady progress that benefit our entire society.
Another real-world consequence of government-set prices is higher overall health care costs. Innovative medicines and treatments today produce better health and longer lives. They keep us out of the hospital and help us avoid surgery.
Those with certain cancers or diseases that just a decade or so ago would have meant a death sentence are now treatable, manageable, some even curable. IRA’s and other government price controls threaten to stymie medical R&D and the medical benefits they bring patients—and the long-term health savings they bring consumers and government payors such as Medicaid and Medicare.
Remember the old commercial where the repair man said, “You can pay me now or you can pay me later?” That’s what’s at stake with IRA’s price controls. Just as in the commercial, the price now on preventive or an immediate medical fix is in the long run much less than the price of fixing after your health condition has gotten way worse.
For instance, a new medication at a “high” price today keeps you healthy enough to continue working and exercising, whereas if that medicine had been forestalled by government price controls, you’d end up sicker and less productive now, facing more extensive and expensive medical needs later on, and likely die an earlier, more painful death.
Those who voted for the IRA and those supporting legislation like that of Warnock, Shaheen and Collins turn to government price controls quashing the competitive market and innovation incentivizes. The IRA’s false promises will eventually be proven hollow—and extremely costly.