The Inflation Reduction Act Will Raise Drug Costs and Reduce Cures | Citizens Against Government Waste

The Inflation Reduction Act Will Raise Drug Costs and Reduce Cures

The WasteWatcher

As the grossly misnamed Inflation Reduction Act (IRA), H.R. 5376, makes its way through Congress, the increased taxes and spending that will fuel inflation and prolong the recession may not be the worst part of the legislation.  The healthcare provisions in the bill will neither improve access to care nor lower patient costs, but it will have a devastating impact on medical research and development.

The bill authorizes government-controlled and imposed drug price negotiations under Medicare Part D, where prices are already subject to private sector negotiations that have made the program very popular and successful at a cost to taxpayers that is far lower than original estimates.     

Citizens Against Government Waste (CAGW) has continually warned about the negative implications of price controls on pharmaceutical development.  CAGW’s November 2021 issue brief, “Pharmaceutical Price Controls Are Bad Medicine,” is one of many such publications. Authorizing the government to set prices through “negotiations” for Medicare is not a new idea, as price control legislation has been introduced in every Congress since the Medicare Prescription Drug, Improvement, and Modernization Act became law in 2003.  The provisions in the IRA will allow the federal government to set prices and establish price ceilings, interfering with drug development and ultimately leading to higher prices.

Numerous studies have verified these negative outcomes. An August 2022 University of Chicago issue brief, “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  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.” 

The August 2022 issue brief noted that the 70 percent of healthcare spending, similar to other industries is on labor, including doctors, nurses, or assistants.  Over the past 20 years, “profits and sales by research-based pharmaceutical companies made up 1.0% and 7.5% of total healthcare spending, respectively.”  The authors concluded, “Ultimately, our results demonstrate that more medical innovation is cost effective to consumers because new drugs create cost offsets, or reductions in total health care spending.  With the current political rhetoric around pharmaceutical drug prices and their impact on consumers, these results may seem counterintuitive.  Nevertheless, our findings show that investments in more innovative medicine are well worth their cost.”

The CBO does not use similar methods to create its estimates, but as the official scorekeeper for Congress, the senators who are voting on H.R. 5376 will claim that the impact on future drug development is not as dire as estimated in the University of Chicago issue briefs.  They are more concerned about taking hundreds of billions of dollars out of pharmaceutical companies’ “profits” to be used for wasteful Green New Deal programs.

More innovation in the medical marketplace will lead to lower costs, not more government distortion.  Limiting access to new and future cures harms patients, and knowingly limiting access to health care by hindering innovation will unquestionably lead to higher costs.  Congress should be making efforts to encourage medical innovation instead of inserting big government control over the marketplace.

The United States should be operating with a free exchange of goods and services, not with unelected bureaucrats, who are unable to predict the needs of patients or set prices, especially for life-saving treatments and cures.

Price controls have historically resulted in shortages and rationing.  Passing the IRA would allow the federal government to meddle in the free market.  The proposed price controls will do irreversible damage to the future development of cures impacting millions of Americans.

Instead of attempting to win political points and pass any legislation they can before the midterm elections, senators should consider the human cost of the healthcare provisions of H.R. 5376 on their families, friends, and constituents.  If they do, they will reject the price controls in the legislation.

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