Congress Should not Double Down on Devastating Drug Price Controls | Citizens Against Government Waste

Congress Should not Double Down on Devastating Drug Price Controls

The WasteWatcher

Despite growing evidence that the biopharmaceutical price controls in the Inflation Reduction Act (IRA) are having the predicted destructive impact on research and development, House Democrats introduced  H.R. 4895, the misnamed Lowering Drug Costs for American Families Act.  Introduced by House Energy and Commerce Committee Ranking Member Frank Pallone (D-N.J.), this bill expands on the mistakes made in the IRA by amending the Social Security Act to “expand the number of drugs subject to negotiation for the initial price applicability year 2029 and each subsequent year thereafter.”  It would raise the annual number of drugs subject to price controls from 20 to 50.  H.R. 4895 would also cast a wider net to include patients with private sector health insurance being subject to the egregious price controls.    

The doubling down on devastating price controls will have significant ramifications for future drug research and development.  Citizens Against Government Waste’s (CAGW) November 2021 issue brief, “Pharmaceutical Price Controls Are Bad Medicine,” warned about the negative impacts price controls will have on patients and these concerns have been reiterated in subsequent publications

Internal government analysis and third-party studies also verify these concerns.  An August 2022 University of Chicago issue brief by Tomas J. Philipson and Giuseppe Di Cera, “The Impact of Biopharmaceutical Innovation on Health Care Spending,” found that price controls would increase healthcare spending by $50.8 billion over the next 20 years and result in 135 fewer new drugs, negatively impacting the lives of 2.47 million patients.  A November 29, 2021, University of Chicago issue brief by Philipson and Troy Durie phrased the impact of 135 fewer new drugs as “generating 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, which finds only five drugs will be lost through 2039, equaling a 0.63 percent reduction.”  

After the IRA was signed into law, Eli Lilly CEO David Ricks said, “I would be shocked if the impact of this bill doesn’t result in 15 fewer drugs from Eli Lilly and Company alone.”  He added that every one of the company’s small molecule projects, which are 40 percent of its portfolio, would all have to be reevaluated. 

An April 5, 2023, Wall Street Journal op-ed, “The Deadly Side Effects of Drug Price Controls,” authored by Tomas Philipson, noted that the impact of the IRA on research and development was worse than expected.  He wrote that his co-authored University of Chicago November 29, 2021, analysis of the number of drugs lost from the IRA, which some members of Congress said was too high, will end up being “far too low.”  Only four months after the IRA was signed into law, Horizon Government Affairs determined that at least 24 companies had decided to stop research and development into new drugs as a result of the provisions of the legislation.  Philipson also pointed out that the Centers of Medicare and Medicaid Services (CMS) rules for price negotiations will not have the normal notice and comment period and there is no appeals process permitted once the mandated price is set by the agency. 

He also analyzed the proposed information request for manufacturers, which is written in a manner that would give the government the power to set prices for the negotiated drugs that will allow manufacturers to get back their expenses with a “modest return for those drugs.”  But this does not account for the full cost of developing a drug, since 90 percent of those that enter clinical trials end up not being approved, which is why the drugs that are approved appear to have an “abnormal” return.  If the government “adopts a de facto cost-plus model on negotiated blockbusters,” Philipson wrote, “R&D investments will dry up.”  As CAGW has also argued, this would make the U.S. more like Europe, which has institute price controls and watched members countries’ share of R&D shrink rapidly.  And while 89 percent of all drugs launched world-wide between 2011 and 2018 were available in the U.S., only 48 percent were available in France. 

Merck sued both the CMS and the Department of Health and Human Services over the proposed drug price negotiations, calling them, as CAGW has also done, “tantamount to extortion.”  The company also stated that the "singular purpose of this scheme is for Medicare to obtain prescription drugs without paying fair market value.” 

Legislation like H.R. 4895 will be detrimental to future drug research and development and have astronomical human costs.  The number of patients that will not receive lifesaving treatment due to these price controls is unconscionable and moves America in the wrong direction.  Efforts by politicians to institute socialist price controls threatens the United States’ global leadership on drug development and would leave not only Americans, but also patients everywhere, with fewer choices and higher costs.