Medicare just announced the first 10 drugs that will be subject to government price limits under last year’s Inflation Reduction Act (IRA). The list will be expanded each year and will eventually encompass most branded drugs in Medicare.
It’s hard to overstate what a momentous change this marks for American health care. Until the IRA, federal authorities couldn’t set prices for drugs. In fact, they could not interfere in price negotiations between drug companies and private Medicare Part D plans, which cover around 50 million seniors and people with disabilities. Now, the government will essentially be able to set drug prices as it sees fit.
The likely ramifications of this seismic shift have been studied at length. First, in countries that have adopted a similar system, patients have less access to drugs. This means fewer treatments, which means poorer health.
Second, experts agree that, by forcing down prices, fewer products will be developed. If the government regulated the price of iPhones, we’d see fewer updates and features. That makes sense because Apple would have less money to make innovations that improve their product.
In the drug space, sources ranging from the Congressional Budget Office and analytics firms to university economists, and health-industry analysts warn that IRA price setting will also deter crucial investments in research and development, resulting in fewer new medicines.
The most conservative estimate from the CBO is that two fewer drugs would be researched and come to market. Many in Congress say they are willing to live with it, but if you have a sick family member or friend and there is no treatment, are you?
Exactly how big these losses will be — or how devastating to patients — is impossible to know this early. But experts of virtually every stripe have acknowledged that government price-setting will result in less innovation.
Multiple companies have already put promising drug development efforts on ice because of the IRA’s price controls. Earlier this year, Novartis stopped work on several potential cancer treatments, citing the threat of price controls. Many other firms have warned of the IRA’s impact on innovation in regulatory filings and investor calls.
Despite these warnings, legislators have recently introduced proposals that would radically expand Medicare’s new price-control authority. Bills in the House and the Senate would immediately increase the number of drugs subject to negotiation, as well as shorten the period during which new drugs are exempt.
The House bill goes even further: it would mandate that the price caps achieved by Medicare be extended to the entire private insurance market. President Biden has also talked about putting drug price controls on the commercial market.
Proponents are sure to give these two bills another push this fall. However, Congress shouldn’t expand a program that’s already having unintended consequences.
A recent study by health-industry analysts Vital Transformation estimated that as a result of IRA price controls, as many as 139 fewer drugs could be developed over the next decade. If the legislature expands the IRA as envisioned by the new Senate bill, that number would leap 230 fewer new drugs. Those “missing” medicines could be treatments for cancer, heart disease, Alzheimer’s, and other major killers that simply never come to fruition.
The IRA is also changing where biopharmaceutical investment dollars go. Rather arbitrarily, it makes most drugs eligible for price controls after just nine years, with an exception for biological drugs — such as gene therapies and monoclonal antibodies — which become eligible after 13 years. This is making research into traditional “small molecule” drugs less attractive from an investment standpoint.
That’s unfortunate because scientists believe that small-molecule drugs are better able to fight cancer and neurological diseases. Plus, since small-molecule drugs are typically pills and capsules, they’re generally cheaper and easier to administer than biologics. We need continued investment in new ones to save both lives and money for patients.
In short, we’re in a world of uncertainty. Medicare made this worse with the way it rolled out the announcement of the first 10 drugs. Healthcare experts widely anticipated a couple of the medicines on the list, but others came as a complete surprise. How Medicare narrowed down its list — and how it will determine which drugs are added later — remains a black box.
This lack of transparency makes decision-making difficult across the healthcare industry, from hospitals and insurers to prescribing physicians.
The fact is we are now in the worst policy-created innovation environment in our history. Just seven years ago, Congress was clamoring to add innovation incentives to the 21st Century Cures Act. Now, many in Congress are clamoring to expand incentives that limit research and development, and innovation where we need it most — our health.
The IRA’s drug provisions may be historic, but a long list of lost cures could become the law’s real legacy. If Congress repealed the IRA’s price controls, we’d have more cures.
Joel White is the President of the Council for Affordable Health Coverage, a non-profit advocacy organization that seeks to lower the cost of health care for all Americans.
