Patients will pay dearly, as Michael Baker and Douglas Holtz-Eakin explain in two recent pieces for the American Action Forum’s “Reality Check-Up: The Truth About Single-Payer Systems.
Biden signed the Inflation Reduction Act into law in 2022. It directs the feds to “negotiate” prices for a steadily increasing number of prescription drugs through Medicare. But these are negotiations in name only.
The law gives the federal government the final word on what it will pay. If drugmakers refuse, then they have to withdraw from Medicare entirely — or face an excise tax that intends to confiscate essentially all the revenue the company makes selling the drug in question.
Baker and Holtz-Eakin argue that the IRA’s “cumulative effects will be felt across the innovation and competition pipelines, with a chilling effect on all-stage development.”
U.S. funding for early-stage small molecule R&D has declined by 68 percent since the IRA’s introduction, falling from $2 billion to $640 million. A study from the University of Chicago found that the IRA will lead to 135 fewer new drugs, a drop that will generate a loss of 331.5 million life years in the United States.
Now, Trump is doubling down on his predecessor’s mistakes. On May 12, the Trump administration issued an executive order to implement a “most favored nation” drug pricing policy that would peg American drug prices to the lower prices other developed nations pay.
“While intended to put America first,” Baker explains, “the EO will have precisely the opposite effect, reduc[ing] the United States’ global lead in both pharmaceutical innovation and patient access to novel drugs and therapies.”
The federal government’s expanded role in adjudicating whether a company deserves access to the U.S. market will, in effect, produce a single-payer system that determines appropriate care and outcomes for patients . . . . This will lessen development of and access to new drugs that treat the ever-rising prevalence of chronic conditions, such as cancer and heart disease, or address rare diseases.
Sally Pipes is the Pacific Research Institute President, CEO, and Thomas W. Smith Fellow in Health Care Policy.
