Congressional Democrats are working to revive the multi-trillion-dollar spending package once dubbed “Build Back Better.” They intend to finance this wave of spending in part by siphoning money away from life-saving research on diseases like cancer, heart disease, and Alzheimer’s.
That would be the chief consequence of a widely-discussed provision allowing Medicare to impose price controls on prescription drugs.
The reform has been sold as an attempt to lower drug costs for seniors. In reality, it would deliver relatively meager savings to Medicare beneficiaries. The federal government, by contrast, would save billions — billions that Democrats want to lavish on green energy subsidies and other climate-related provisions.
America’s biotech industry — the greatest source of medical innovation the world has ever known — would be collateral damage.
During the pandemic, we’ve seen just how indispensable medical research is. Pharmaceutical companies worked at record speed to invent, manufacture, and distribute state-of-the-art vaccines for a virus that, just months earlier, was completely unknown. Those efforts helped curtail the greatest public health catastrophe of our time — and saved millions of lives.
Even more astounding medical breakthroughs could be just around the corner. For instance, in a recent clinical trial, an experimental new drug for rectal cancer eliminated the disease in every patient that received the treatment — a first in the history of cancer research. Earlier this year, another new drug was shown to cure leukemia in certain patients.
At last count, the U.S. drug industry was at work on 8,000 different cures, treatments, and vaccines — three-quarters of which are unlike anything medical science has ever produced. The United States is currently responsible for two-thirds of all drug innovation worldwide.
None of this work would be possible without our market-based system of drug development. Yet it’s precisely this world-leading approach to inventing new treatments that the Democrats’ Build Back Better 2.0 would destroy. The bill would permit Medicare to “negotiate” drug prices with the pharmaceutical industry.
These would be negotiations in name only. The legislative language of the bill makes it clear that the government would fix the maximum price of a negotiated medicine at 75% of its “average non-Federal average manufacturer price available for such drug for 2021.” (For drugs that gain FDA approval after 2021, the government would calculate the formula using the drug’s average price in its first year on the market.)
In plain English, that means the federal government would decree itself a 25% discount compared to what private-sector insurers pay. And the bill ultimately drops those maximum price levels down to 65% and then 40% of a drug’s average private-insurer price over time.
Such statist policies would deter companies from investing in research and development. It costs nearly $3 billion over roughly a decade to develop just one new drug. If the government — the largest purchaser of prescription drugs — gets to name its own price for every breakthrough medicine, the incentive to invest such astounding sums would evaporate, stunting medical progress indefinitely. According to one recent study by University of Chicago economist Tomas Philipson, the drug-pricing measure under consideration by Democrats would result in 135 fewer new drugs by 2039.
Of course, proponents of these reforms claim they will benefit patients. In late June, Sen. Ron Wyden, D-Ore., defended government “negotiations” as a means of helping seniors who are “getting clobbered at the pharmacy counter.”
In fact, the price controls largely won’t change what patients actually pay out of pocket. Those costs are set by insurance plans, not drug companies.
To be fair, the bill would save seniors some money. But those savings come largely from a proposed cap on out-of-pocket expenses, an idea that has nothing to do with price controls.
The real purpose of the price controls is to lower the government’s drug bill. By one estimate, the legislation’s drug-related provisions would save the government $297 billion over the next decade.
But those savings would come at an unthinkable price for American patients — and, indeed, for patients everywhere.
Medical science has never been more critical to how we live — nor has it ever held so much promise. The drug price controls championed by Democrats would defund groundbreaking efforts to cure disease — and shorten the lives of millions of people over the long term.