Price Controls Must Not Be Included in Reconciliation | Citizens Against Government Waste

Price Controls Must Not Be Included in Reconciliation

The WasteWatcher

As the debate continues over the Build Back Better Act, or budget reconciliation bill, which is a 10-year plan with an estimated cost to the taxpayer of at least $3.5 trillion, Senate Finance Committee Chair Ron Wyden (D-Ore.) said he is planning to include some form of Medicare price negotiation.  This drug price control proposal is intended to raise money to help pay for adding benefits to Medicare, expanding Medicaid coverage in holdout states, and making Obamacare plans more affordable. Simply put, this is one wrong decision after another.

On top of these proposals, H.R. 3, The Lower Costs Now Drug Act, is already in the House version of the reconciliation bill. It allows the government to negotiate Medicare prices for Part B and Part D.  While this may sound like a good idea, the government negotiating really means setting prices, or utilizing price controls.  Price controls never work, and they distort the medical marketplace.  Optimal healthcare in the United States should be cost-effective, accessible, and patient-centered.  Yet, there is little regard from proponents of this proposal for the consequences of implementing price controls on medications.  And they are also ignoring the existing private sector negotiations that occur among pharmaceutical companies, pharmacy benefit managers, insurance companies, and pharmacies that have led to lower prices for drugs and significant satisfaction with Part D.

These negotiations have been protected under the “non-interference clause.”  According to the Congressional Budget Office, “…the negotiating lever that’s used to lower drug prices is the threat of not allowing that drug to be prescribed or putting limitations on it being prescribed within that drug plan.”  Consequently, removing the protection of this clause by allowing the government to negotiate prices would be detrimental to Medicare patients in need of new and innovative treatments.

An even more problematic provision of H.R. 3 is the potential 95 percent tax if a pharmaceutical company does not agree with the price of a drug set by the government based on the average price in other countries.  Those prices are controlled by the government and are lower because the United States is the global leader in clinical trials and research, with nearly 60 percent of the intellectual property for all new drugs, and about 75 percent of start-up investment for biopharmaceutical companies.

On average, it takes 10 to 15 years and $2.6 billion to bring a drug from lab to market. Instituting price controls would only exacerbate this already costly endeavor by removing incentives for investing in pharmaceutical research and development.   This is especially worrisome for the 30 million Americans who suffer from approximately 7,000 rare diseases, only 5 percent of which have Food and Drug Administration (FDA) -approved treatments.

There may be lower prices at first, but that comes with a significant and devastating long-term cost. An August 2021 Congressional Budget Office (CBO) Simulation Model of New Drug Development report projects the proposed drug pricing policies will decrease by 8 percent the number of drugs entering the market in the third decade under the policy, resulting in at least 60 lost treatments. Citizens Against Government Waste believes this is a conservative estimate by CBO and the loss of future innovation could be much greater.  H.R. 3 will hand over life and death decisions to federal bureaucrats, who will decide which diseases, common or rare, will receive funding for new treatment and cures.

In the House, Rep. Scott Peters (D-Calif.) has offered his own proposal to lower drug prices as a supposed compromise.  It would limit negotiations to part B drugs without competition. Supporters of H.R. 3 object to this watered-down version of their legislation.  His proposal also leaves out the 95 percent excise tax.  However, an October 21 Inside Drug Pricing article noted that Peters said at a town hall last week he is open to negotiation in Medicare Part D if there is no excise tax to enforce price controls, which brings him back in line with the provisions of H.R. 3.

Both supporters and opponents have instituted ad campaigns on this heated topic.

Supporters of H.R. 3 are right about one thing: drug prices in the U.S. are higher compared to other countries.  But they have the wrong solution. The U.S. healthcare system provides Americans greater choices and access to life-saving medications compared to other countries. As CAGW noted in its September 2021 report, increasing the use of Health Savings Accounts and Health Reimbursement Arrangements, expanding the use of State Innovation Waivers, and regulatory relief at the federal and state level would preserve the benefits of the U.S. healthcare system at lower costs.

The COVID-19 pandemic shed light on the importance of innovation in the medical industry. American ingenuity drove the development of the Pfizer-BioNTech COVID-19 Vaccine, the first of its kind to get FDA approval.  Pfizer invested more than $1 billion to fund development of this life-saving vaccine. These kinds of investments must be protected rather than endangering them with reckless price controls.

Industry leaders have raised another compelling reason to object to the proposed price controls in the reconciliation bill.  Pfizer CEO Albert Bourla said, “Where we disagree is policies that will take all the money from the pharmaceutical industry and move them to the black hole of the federal budget to do other things.”  As CAGW has noted, Congress has approved $5.7 trillion for COVID-19 “relief,” $1 trillion of which has not been spent, and is now considering trillions of dollars more for the reconciliation bill and the bipartisan infrastructure bill, without cutting a single penny of government waste, fraud, abuse, and mismanagement.

If the federal government steps in and imposes price controls like those being considered for the reconciliation package, not only will individuals who are in government-run healthcare systems like Medicare and the VA be impacted, but also those in the private sector will feel the brunt of fewer innovative treatments and cures.

Instead of expanding federal government price control policies that have distorted the marketplace, Congress should be considering deregulatory measures would remove the heavy hand of government and expand upon free market principles that have successfully worked to make the U.S. biopharmaceutical industry the envy of the world, along with improving the FDA approval process to bring drugs to market sooner.

The debate over the reconciliation bill highlights that choice between greater government control, under which politicians and bureaucrats decide what kind and level of care patients will receive, or empowering individuals to be in charge of their own healthcare.  Including anything like H.R. 3 in the final bill would bring America one step closer to government-run healthcare, which would be a bad prescription for everyone.

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