The White House would have you believe President Biden is fighting a war on drug prices, but they won’t tell you what’s he’s doing is really a war on drugs. This issue was first discussed in two blog posts nearly a year ago, The Real Cost of Lowering Drug Prices and Cancer Drug Breakthroughs Threatened.
Fast forward to today when The Wall Street Journal editorial board wrote Drug Price Controls Mean Slower Cures. They say, “The Inflation Reduction Act (IRA) is the worst legislation to pass Congress in many years, and its drug price controls are especially harmful. On Tuesday President Biden announced the first 10 drugs for controls, and he’s exaggerating the benefits while ignoring the larger damage.”
The IRA legislation requires the Centers for Medicare and Medicaid Services to “negotiate” prices for the top-spending Medicare drugs, starting with 10 this year and a total of 60 by 2029. The law sets the drug price ceiling at between 25% and 60% of its list price, with no price floor. Drug makers that don’t participate or reject the government’s price will incur a crippling daily excise tax that starts at 186% and eventually climbs to 1,900% of the drug’s daily revenues. WSJ’s editors say, “This is extortion, not a negotiation.”
In the first round of 2023, the Biden Administration is targeting drugs that treat common conditions such as Bristol Myers Squibb’s blood thinner Eliquis, Boehringer Ingelheim and Eli Lilly’s diabetes drug Jardiance, Johnson & Johnson’s blood thinner Xarelto, Amgen’s rheumatoid arthritis drug Enbrel and Novo Nordisk’s insulin Novolog. The President proclaimed “This plan is a key part of Bidenomics.”
But WSJ editors say this plan relies on deceptive advertising, like his other command-and-control government plans. Start with the claim that the 10 drugs accounted for $50.5 billion – or about 20% of “gross” costs for Medicare’s Part D drug program. “Gross” spending excludes the discounts that drug makers pay Part D plans for higher placement on formularies. Medicare drug prices are already negotiated by insurers, and Part D net spending is about half Medicare’s “gross” costs. The Administration also overstates the rise in prescription drug costs. Medicare spending on prescription drugs has grown less than for hospital and physician services in the last decade. Total U.S. out-of-pocket spending on prescription drugs in nominal dollars is lower than it was in 2003 and accounted for only 1% of the $4.25 trillion the U.S. spent on healthcare in 2021.
The real problem is the impact the IRA will have on new drug innovation. This legislation will discourage investment in new generics and biosimilars because their manufacturers could later be undercut by government price controls on brand drugs. That means Americans may end up paying more for prescription drugs thanks to the IRA. The law will also give companies the incentives to launch drugs at higher prices and raise prices for privately insured patients to compensate for the Medicare cuts. That means the 218 million Americans with private insurance will pay more for drugs. Call it the Private Insurance Inflation Act.
President Biden also claims this will decrease prices “for up to 9 million seniors.” That sounds good if you’re campaigning for senior votes. But WJS editors say this claim is also inflated. Several drugs on its list will soon lose market exclusivity and could face competition from generics that reduce prices without government intervention. Now those generics might not be developed or launched.
The IRA encourages drug makers to slow-walk development of treatments for smaller populations since Food and Drug Administration approval would start the clock on eligibility for price controls. The law will also discourage drug makers from studying and launching drugs for new indications, as AstraZeneca explained in a lawsuit last week. A study in the Journal of the American Medical Association this month estimated that about a quarter of FDA-approved orphan drugs were developed for at least one follow-on indication. Under the IRA, many wouldn’t have been. There’s no such thing as a free drug.
What will be the impact of the IRA on research and development of new drugs?
A University of Chicago study estimated that the drug price controls would reduce research and development by $663 billion through 2039 and result in 135 fewer new drugs being approved. These are among the IRA’s unseen costs, which will include lives that could have been saved or extended by new treatments that were delayed or never developed.
I’ll bet that won’t be included in President Biden’s next campaign speech.
