Senate Drug Plan Helps Government, Hurts Patients
By Andrew Langer
Nancy Pelosi has a plan to lower drug prices. The Speaker of the House just released a new bill that would impose a slew of new taxes and allow the government to meddle with private businesses.
We've come to expect this type of extremism from Pelosi and House Democrats. Unfortunately, Republicans on the Senate Finance Committee have put forward a strikingly similar plan.
Like Pelosi's bill, the Senate package would impose new taxes on innovators. While this plan would save the government money in the short-term, it wouldn't do anything to reduce patients' out-of-pocket costs. And over time, it would make it harder for researchers to develop new cures.
The Senate Finance Committee's package would restructure Medicare's "Part D" prescription drug benefit. Right now, 45 million Americans rely on Part D for drug coverage.
Rather than administering the benefit itself, the federal government subsidizes private insurers who sell Part D plans to patients. These insurers compete for beneficiaries' business by offering quality plans at affordable prices.
As a result of this competition, average monthly Part D premiums are around $32 -- half of original Congressional Budget Office projection. And nine in 10 seniors are satisfied with their Part D coverage.
Unfortunately, the Senate Finance Committee is willing to compromise this successful program to generate some short-term savings.
For instance, the bill would penalize drug companies who raise their prices in Medicare faster than the rate of inflation.
This policy is supposed to prevent drug companies from raising prices. But in reality, it would encourage manufacturers to launch medicines at higher list prices, raising costs for beneficiaries.
The bill would also impose a 20 percent manufacturer tax on drugs sold in Medicare's "catastrophic phase." Currently, once Part D beneficiaries spend $5,100 out of pocket, the government and their insurer pay for 95 percent of each drug they take. The Senate bill would shift a majority of that burden onto manufacturers. This would cost biotech firms $55 billion over the next decade.
Just like the "inflation penalty," this new tax won't help patients. If the 20 percent manufacturer liability takes effect, 98 percent of beneficiaries won't see their out-of-pocket costs drop. Some could even see their pharmacy bills go up.
These policies would also siphon money away from the search for new treatments.
It takes more than $2.6 billion, on average, for scientists to bring one new drug to market. Research firms rely on revenue from successful drugs to fund future endeavors.
The Senate bill's new taxes would cut into drug makers' ability to recoup research costs and earn a return. That means more than 4,000 drugs currently being developed for Alzheimer's, cancer and other diseases could die in the lab.
There's no doubt that the Senate Finance Committee's plan would deliver short-term savings to the government. But it would do so at the expense of medical progress, without helping patients at the pharmacy counter.
Andrew Langer is President of the Institute for Liberty.
