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IRA, Sen. Manchin and the Future of Drug Innovation

In an op-ed in the Wall Street Journal headlined “A Law That Isn’t Red or White—and Sure Isn’t Green,” Sen. Joe Manchin claims his “Inflation Reduction Act” isn’t so bad one year in.

“I’m proud of the Inflation Reduction Act,” the senator asserts. He gives several examples of how his law advances fossil fuel projects that use green technologies such as carbon-capture. He also acknowledges “this administration’s best efforts to botch the law’s [coal and oil-and-gas provisions’] implementation.”

Taking Sen. Manchin at his word about this aspect of the IRA, an unmentioned part of this law renders it a destructive mistake. The costs to individual human beings and to society from the drug price controls may haunt Sen. Manchin long after he retires from politics.

The IRA’s price-setting process lacks a level playing field, transparency and due process. The Information Technology & Innovation Foundation notes its “ambiguous and poorly crafted processes, which the Centers for Medicare & Medicaid Services (CMS) will use to calculate” a targeted drug’s price.

A big clue of IRA’s unfairness: the drug price controls regime employs pricing by uneven bargaining power. There’s zero actual negotiation.

Biopharma innovators will face a choice between taking the government’s price or declining it and paying an excise tax of up to 1,900% on all drug sales. That’s the epitome of confiscatory and extortionate taxation and a preordained outcome.

The arbitrary, capricious unfairness continues. The Biden administration on August 29 named the first 10 medicines subject to their prices being set by the government. This gave pharma companies a month to provide CMS information for determining its initial price bid.

Stacked listening sessions this fall will build a record backing low-ball prices. Drug makers get only one opportunity to counteroffer in meeting with CMS.

Sen. Manchin’s IRA law prohibits drug companies hauled into the CMS star chamber from appealing the government’s decision in court or even administrative review.

The prices CMS dictates won’t account for the adverse effects of Biden’s high inflation. The selected drugs’ makers have until October 2, 2023, to give CMS data and evidence to consider in setting prices. This information may be outdated by the time price-controlled rates take effect January 1, 2026—years after the data were drawn and inflation keeps reducing the value of money.

As for due process, CMS has been opaque in setting up the drug pricing regime. The agency has ignored the Administrative Procedure Act. The APA requires that due process protections be observed in executive branch rulemaking and other agency actions. CMS has written the rules of the drug price controls game unilaterally.

IRA lets federal agencies operate in a black box. This law amounts to a cornerstone ensconcing the Administrative State.

Further, IRA’s drug price controls will impose a heavy cost on medical innovation. Government price dictation will reduce funds for research and development of new pharmaceuticals. That means fewer new medicines developed.

A University of Chicago study explains the effect of “a drug-manufacturer-revenue loss of 15 percent from the IRA . . . in R&D and new drugs . . . . [A] 15 percent cut in the CBO's [Congressional Budget Office] prediction of 45 new drugs per year would suggest around 6.8 fewer drugs per year, totaling around 121 lost over the 18-year horizon.” And CBO doesn’t account for all the factors the Chicago study does.

That report assesses specifics, such as the first 10 drugs. Chicago researchers examine the effects of the IRA-shortened patent life of small-molecule drugs, of price-cutting by drug-class competitors and IRA-created deterrents to generic drug entry.

For example, CMS exempts large-molecule medicines—biologics—from “negotiation” for 13 years after Food and Drug Administration approval. It subjects small-molecule drugs—pills—to price controls after only 9 years. Seven of the first 10 price-controlled drugs are small-molecule.

This variety of takings of private property without just compensation raises fundamental property rights and constitutional concerns. CMS will take away years of patent term, erasing billions of dollars of valuable time on the market at market prices.

It also has practical effects. Biologics must be administered in a doctor’s office or a clinic. You can’t take them at home with your breakfast. Convenience for patients managing chronic conditions translates into medication adherence, which oral drugs promote.

It’s hard enough to discover and develop ways to treat or cure diseases such as cancer, diabetes or Parkinson’s. Government price controls shrinking the innovation pipeline condemn patients to earlier death, longer suffering and more expensive medical care over the long run.

Sen. Manchin and President Biden run roughshod over property rights with their IRA. Their regrettable law ironically runs counter to the president’s Cancer Moonshot.

I hope Sen. Manchin doesn’t get sick starting in 2026.

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