Just a few days ago, it appeared that Democrats had given up on including prescription drug pricing reforms in their massive spending bill.
But not anymore.
In an eleventh-hour turn of events, congressional Democrats this week resurrected their long-standing desire to levy government price controls on prescription drugs.
If lawmakers successfully deploy their latest price-control gambit, then patients today and in the future will miss out on state-of-the-art treatments that will never be invented.
According to early reports, the new drug-pricing proposal would do away with Medicare Part D’s non-interference clause — the component of the law that prohibits the government from meddling in drug-pricing decisions.
It would also cap seniors’ out-of-pocket prescription drug spending at $2,000 a year.
And it would limit co-pays for insulin to $35 a month.
Beginning in 2023, Medicare would be empowered to negotiate the price of the 10 most expensive drugs paid for through the program.
Those prices would take effect in 2025.
By 2028, that number would increase to 20 drugs.
The drugs subject to negotiation would be those no longer protected by data exclusivity rules. That means small-molecule drugs would be up for negotiation after nine years on the market, and complex biologic drugs after 12 years.
Calling this arrangement a “negotiation” is misleading. The federal government has the power to essentially dictate what it will pay for prescription drugs. And it intends to use that power to force drugmakers to sell their medicines at prices well below those in force today.
These shakedown tactics will almost certainly result in fewer new medicines coming to market. In an analysis of a similar proposal, University of Chicago economist Tomas Philipson forecast that negotiations would reduce research and development spending by as much as $2 trillion and result in up to 342 fewer drugs making it to market over the next 20 years.
Pharmaceutical research and development is expensive and has a high risk of failure.
According to research from Tufts University, it takes nearly $3 billion, adjusting for inflation, and more than a decade to bring a drug to market. And just 10% of drugs that enter phase 1 clinical trials in humans successfully make it to market.
With less revenue because of “negotiations” but the same risk of failure, pharmaceutical companies will drastically scale back their research and development plans.
Investors, meanwhile, will deploy their capital to other pursuits where they have a better chance of seeing an outsized return.
Why fund drug research, even potentially revolutionary drug research, if the government can simply seize the fruits of that research by imposing price controls?
Democrats are not deaf to this argument, which is why their price-control proposal would exempt small biotech firms.
This wrinkle acknowledges that the lion’s share of drug innovation occurs at smaller outfits. And it seeks to shield them from the dynamism-destroying consequences of price restrictions.
But it won’t work.
Biotech start-ups with promising drugs don’t remain small for long. Typically, these firms have to partner with — or become part of — a larger pharmaceutical firm in order to navigate the regulatory approval process and build out the infrastructure needed to manufacture their product at scale.
The Democrats’ carve-out would get in the way of this division of labor.
It would give small biotech firms an incentive to remain small for as long as possible, since merging with a larger operation would come with a substantial penalty in the form of government price controls.
Such a reform would alter the economics of drug development in ways too complex to fully anticipate. But this much is clear — it would make it far more difficult to translate groundbreaking scientific discoveries into life-saving medicines.
Democrats may think that lowering drug prices by fiat will benefit them politically.
And polls tend to back up that hunch.
But the tide of public opinion turns when people learn that price controls on prescription drugs will result in reduced access to medicines. That’s something that Democratic leaders should keep in mind in the aftermath of their poor showing in elections in Virginia, New Jersey, and elsewhere this week.
Democrats Abandon US Patients to Rescue Drug-Pricing Reform
Sally C. Pipes
Just a few days ago, it appeared that Democrats had given up on including prescription drug pricing reforms in their massive spending bill.
But not anymore.
In an eleventh-hour turn of events, congressional Democrats this week resurrected their long-standing desire to levy government price controls on prescription drugs.
If lawmakers successfully deploy their latest price-control gambit, then patients today and in the future will miss out on state-of-the-art treatments that will never be invented.
According to early reports, the new drug-pricing proposal would do away with Medicare Part D’s non-interference clause — the component of the law that prohibits the government from meddling in drug-pricing decisions.
It would also cap seniors’ out-of-pocket prescription drug spending at $2,000 a year.
And it would limit co-pays for insulin to $35 a month.
Beginning in 2023, Medicare would be empowered to negotiate the price of the 10 most expensive drugs paid for through the program.
Those prices would take effect in 2025.
By 2028, that number would increase to 20 drugs.
The drugs subject to negotiation would be those no longer protected by data exclusivity rules. That means small-molecule drugs would be up for negotiation after nine years on the market, and complex biologic drugs after 12 years.
Calling this arrangement a “negotiation” is misleading. The federal government has the power to essentially dictate what it will pay for prescription drugs. And it intends to use that power to force drugmakers to sell their medicines at prices well below those in force today.
These shakedown tactics will almost certainly result in fewer new medicines coming to market. In an analysis of a similar proposal, University of Chicago economist Tomas Philipson forecast that negotiations would reduce research and development spending by as much as $2 trillion and result in up to 342 fewer drugs making it to market over the next 20 years.
Pharmaceutical research and development is expensive and has a high risk of failure.
According to research from Tufts University, it takes nearly $3 billion, adjusting for inflation, and more than a decade to bring a drug to market. And just 10% of drugs that enter phase 1 clinical trials in humans successfully make it to market.
With less revenue because of “negotiations” but the same risk of failure, pharmaceutical companies will drastically scale back their research and development plans.
Investors, meanwhile, will deploy their capital to other pursuits where they have a better chance of seeing an outsized return.
Why fund drug research, even potentially revolutionary drug research, if the government can simply seize the fruits of that research by imposing price controls?
Democrats are not deaf to this argument, which is why their price-control proposal would exempt small biotech firms.
This wrinkle acknowledges that the lion’s share of drug innovation occurs at smaller outfits. And it seeks to shield them from the dynamism-destroying consequences of price restrictions.
But it won’t work.
Biotech start-ups with promising drugs don’t remain small for long. Typically, these firms have to partner with — or become part of — a larger pharmaceutical firm in order to navigate the regulatory approval process and build out the infrastructure needed to manufacture their product at scale.
The Democrats’ carve-out would get in the way of this division of labor.
It would give small biotech firms an incentive to remain small for as long as possible, since merging with a larger operation would come with a substantial penalty in the form of government price controls.
Such a reform would alter the economics of drug development in ways too complex to fully anticipate. But this much is clear — it would make it far more difficult to translate groundbreaking scientific discoveries into life-saving medicines.
Democrats may think that lowering drug prices by fiat will benefit them politically.
And polls tend to back up that hunch.
But the tide of public opinion turns when people learn that price controls on prescription drugs will result in reduced access to medicines. That’s something that Democratic leaders should keep in mind in the aftermath of their poor showing in elections in Virginia, New Jersey, and elsewhere this week.
Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.