Drug Companies Shouldn't Be Used as a Political Piggy Bank
By Kenneth E. Thorpe
It's been just over a year since President Biden signed the Inflation Reduction Act into law. Already, Americans are reaping numerous benefits from the law's historic investments in clean energy and health care.
According to the White House, the IRA's climate provisions have already spurred the creation of 170,000 jobs. Seniors on Medicare are paying less for insulin thanks to the law's new $35 per month cap.
Those are all important achievements. But let's be honest: All legislation involves tradeoffs, and the IRA is no exception. While the bill's authors may have gotten some things right, it's false advertising to say it comes at no or little cost.
The IRA empowers Medicare officials to set the prices the program will pay on select brand-name drugs. The Biden administration recently announced the first ten medicines that will be subject to those price controls. Their new prices will go into effect in 2026, with more drugs eligible for price controls in the years ahead. The IRA also requires drug companies to issue rebates to Medicare on medicines whose cost goes up faster than the rate of inflation.
Government scorekeepers calculate the savings to Medicare from the IRA's drug price provisions and other related policies at $266 billion through 2031. But the Medicare savings the IRA produces don't get deposited as a lump sum into Medicare's trust funds to extend the program's solvency.
Rather, the savings are just dollars in the "unified" federal budget. That means the money simply offsets part (not all) of the $670 billion in new spending and tax credits the IRA provides for clean energy.
The IRA's clean energy proposals are worthy. But we can't pretend the money for them isn't coming from somewhere.
That "somewhere" would be the research firms responsible for bringing innovative medicines to patients. Lawmakers found a convenient way to transfer funds from the life-sciences industry to the federal government -- establishing a piggy bank, of sorts, that they could use to fund clean energy. But this process can't continue without jeopardizing the development of tomorrow's medicines.
Research firms, just like all companies, have to remain profitable to stay in business. When the opportunities to earn a return look grim -- as is the case when the government can set a price for the product you sell -- companies cut back in other areas.As a result, patients will have access to fewer new drugs. According to economists at the University of Chicago, the drug price control provisions of the IRA could result in 135 fewer new drugs by 2039.
That is not a solution for patients, particularly those still waiting for treatments and cures for Alzheimer's, cancer, and other serious diseases. Every new medicine developed to treat one of those conditions may reasonably translate into millions of lives saved.
That's the tradeoff we're making to support clean energy. Unfortunately, lawmakers are continuing to ignore it. Several of them have proposed legislation that would expand the scope and severity of the IRA's price controls, despite the fact that the original ones have yet to take effect.
If they succeed in squeezing the industry tighter, legislators could very well end up exacerbating the problem they're trying to fix. Good policymaking requires an honest assessment of tradeoffs. Lawmakers must take a long, hard look at their efforts to turn the life sciences industry into a piggy bank -- and decide whether price controls are really the best way to fund other policy priorities.
Kenneth E. Thorpe is chair of the Department of Health Policy and Management at the Rollins School of Public Health, Emory University. He is also chairman of the Partnership to Fight Chronic Disease.
