Price Controls Are Still Bad Medicine | Citizens Against Government Waste

Price Controls Are Still Bad Medicine

The WasteWatcher

Citizens Against Government Waste has long argued that price controls on pharmaceuticals will not lower prices and lead to fewer future cures.  And efforts to set drug prices are targeting one of the few products whose price has not increased substantially when the economy is being hit with the worst inflation in the past 40 years.  According to a July 15, Wall Street Journal editorial, drug prices have gone up by 0.1 percent in the past month and 2.5 percent over the past year.  The editorial cited a January 2022 Congressional Budget Office report that “estimated that the average prescription drug net price for the Medicare Part D program fell to $50 in 2018 from $57 in 2009, and to $48 from $63 for Medicaid.  This doesn’t include the lifetime savings to the healthcare system from treatments like Hepatitis C drugs that cure most patients.” Nonetheless, the ongoing negotiations between Senate Majority Leader Chuck Schumer (D-N.Y.) and Sen. Joe Manchin (D-W.Va.) appear to have led to an agreement to give the federal government the ability to determine the price of certain drugs.

During consideration of the Build Back Better Act, which passed the House with price controls on pharmaceuticals based on provisions of H.R. 3, CAGW highlighted how they would destroy the vibrant U.S. pharmaceutical industry and have devastating consequences for the American people.  The negative impact of price controls were also noted in CAGW’s November 2021 issue brief, “Price Controls on Pharmaceuticals Are Bad Medicine,” which cited an August 2021 Congressional Budget Office (CBO) report that found that the price controls would have compounding negative implications regarding drug development. In the third decade, Americans would see 9 percent fewer drugs developed, but this appears to be a considerable underestimate.  A November 29, 2021, issue brief published by University of Chicago economists Dr. Thomas Philipson and Troy Durie found that the price controls in the BBBA, “will reduce revenues by 12.0 percent through 2039 and therefore that the evidence base predicts that R&D spending will fall about 18.5 percent, amounting to $663 billion.  We find this cut in R&D activity leads to 135 fewer new drugs.  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.  These estimated effects on the number of new drugs brought to market are 27 times larger than projected by CBO.”

Lowering drug prices makes an impressive sound bite, and voters across the political spectrum are supportive until they learn the consequences, particularly fewer future cures.  A June 2021 Kaiser Family Foundation (KFF) poll found that nearly 88 percent of the public believes that allowing the government to negotiate for lower prices on medications is a top priority.  But when they find out that allowing the government to negotiate for lower drug prices would lead to less research and development of innovative drugs, the favorability drops to 32 percent, and opposition rises to 65 percent. 

It is time for senators to stop trying to solve a problem that does not exist.  It is too dangerous for the government to decide how much a drug should cost.  It would stifle innovation and research and undercut the global leadership that the U.S. has developed in biopharmaceuticals, in large part because other countries have imposed price controls on their healthcare systems.  It would also cut down on investment because there would be a limited return on the capital needed to develop new drugs.  Taxpayers should tell their senators to just say no to drug price controls.