By Grace-Marie Turner and Nina Owcharenko Schaefer
The Biden administration announced the first 10 prescription drugs it will target in its newly authorized drug price “negotiation” regime, on August 29.
Under the Inflation Reduction Act (IRA)—more properly dubbed the Innovation Reduction Act—the Centers for Medicare and Medicaid Services (CMS) announced the 10 drugs under Medicare Part D the agency will subject to its Drug Price Negotiation Program.
These drugs are “single-source drugs with the highest Medicare spending,” with some exemptions.
However, the IRA, passed by Congress and signed by President Joe Biden a year ago, threatens to impose an enormous excise tax on the selected drugs to force pharmaceutical developers to participate.
Boehringer Ingelheim is the seventh company to file a lawsuit against the U.S. Department of Health and Human Services (HHS). The suits claim the drug price program is unconstitutional on several grounds, including that it violates the First Amendment (compelled speech), Fifth Amendment (due process and unlawful taking), and the Eighth Amendment (excessive fines) as well as other constitutional harms.
Two plaintiffs have filed motions seeking injunctive relief to stop HHS from implementing the program through the CMS.
Benefits Few Seniors
Douglas Holtz-Eakin, an economist who heads the American Action Forum, details the impact of the misguided program which, he says, “features price controls and draconian taxes.”
Holtz-Eakin argues that although Biden and other Democrats advertised the IRA as “substantially” reducing drug costs for a wide swath of Medicare beneficiaries, in fact, fewer than 10 percent of seniors will benefit at all. For those who do see savings, he argues, they will be modest. Fully 69 percent of those who see any savings will pocket less than $300.
University of Chicago economist Tomas Philipson has extensively studied the law’s expected impact. He estimates that because of the price control regime, 135 fewer drugs will be brought to market, amounting to $18 trillion in health-related losses through 2039.
Cost in Lives
The impact on patients will be significant, decimating drug development as pharmaceutical companies pull funding for promising drugs from the research pipeline, Philipson predicts.
“This drop in new drugs is predicted to generate 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 U.S. to date,” Philipson wrote.
Each year, the CMS will add more and more drugs to its target list. Americans can expect to see fewer new cures and treatments along with the same restrictions and rationing patients face in countries that have government-run, price-controlled health systems.
“Of all drugs launched worldwide between 2011 and 2018, 89% were available in the U.S. while only 48% were available in France. Bureaucrats may be well-intentioned, but markets are always better at setting prices,” wrotePhilipson.
And all of this is being done so the Biden administration can “save” an estimated $238 billion over a decade. Money that it does not plan to reinvest in Medicare to stave off the program’s pending bankruptcy, but rather to fund its radical agenda, especially its climate change initiatives.
The drug price control scheme will freeze today’s innovation in place because it punishes companies that continue to improve a drug and find new disease applications—applications that are the source of the majority of cancer drugs.
Erica York, senior economist with the Tax Foundation, explains that it currently takes an average of 10 years and more than $2 billion to develop and bring a new drug to market. The industry invested more than $100 billion in research and development in 2021, but leaders already are pulling funding for new drugs. Peter Thompson, private equity partner at OrbiMed Advisors LLC, said during a recent BIO Investor Forum that the 2022 law already is “directly hampering science.”
Drug companies are in the crosshairs of the IRA, no matter what they do. The law forces them to state they “agree voluntarily” to whatever price the government offers for their drugs—with no minimum price.
And companies will face enormous and punitive fines if they don’t comply. New Jersey-based Merck states in its lawsuit that manufacturers who don’t participate in negotiations “must pay an escalating excise tax that starts at 186% and eventually reaches 1,900% of a drug’s daily revenues.”
The company estimates that refusal to negotiate for even just one drug could incur fines of tens of millions of dollars on the first day—increasing to hundreds of millions of dollars per day thereafter.
Lives at Risk
This exposes the falsehood of the “negotiation.” In a private negotiation, the playing field is level.
Under this scheme, though, the government sets the terms and enforces the penalty.
It’s as if the government fielded a baseball team and also acted as umpire. The playing field here is not equal. It’s important for Americans to know these facts before the CMS decimates drug development in the United States.
Congress has held numerous hearings to investigate the expected impact of the new law. It must continue its oversight and use its authority where possible to curtail the Biden administration’s plans as the law makes its way through the courts.
With fewer cures and treatments, lives are at risk.
Grace-Marie Turner (firstname.lastname@example.org) is president of the Galen Institute. Nina Owcharenko Schaefer (TBA) is the director of the Center for Health and Welfare Policy at The Heritage Foundation. This article appeared in The Daily Signal on August 29, 2023. Reprinted with permission.