On Tuesday, the Biden administration named the first 10 prescription drugs that will be subject to new government price controls. The novel power is derived from the Inflation Reduction Act (IRA), which permits the federal government to price-fix certain medications that are accessed through Medicare.
Democrats will cheerlead the heavy-handed move as a win while ignoring the unintended consequences. But, to the detriment of patients and the free market, the fallout will far outweigh the benefits.
Companies that make the chosen products could experience an economic chilling effect. Examples include Eli Lilly, Johnson & Johnson, and Bristol-Myers Squibb, which make popular drugs that help manage diabetes, reduce the risk of stroke, and prevent blood clots. Why? Because the federal government is compromising the free market by picking winners and losers.
Considering the floodgates are now open, businesses and investors are questioning: who could the government target next?
The chilling effect on the economy will ripple well beyond corporate boardrooms and Wall Street. The future health of Americans will be hardest hit—sucker punching the very patients the Biden administration is claiming to help. How? The changes will throw a grenade into the research and development process for new lifesaving treatments, therapies, and vaccines.
The process to develop a new medicine is complex and arduous—making it an extremely expensive undertaking. On average, it costs more than $2 billion and takes roughly 10 to 15 years. And that’s for successful products. Less than 12 percent of drugs that make it to clinical trials get across the finish line. So, investments associated with failed products also have to be baked into company budgets.
The government can and should demand high standards around the drug approval process. The hoops help ease the minds of Americans by confirming that treatments being administered at hospitals or drugs being purchased at the pharmacy counter are safe and effective. When combined with the dynamic community of scientists, researchers, doctors, and drugmakers, it’s why Americans enjoy the most cutting-edge healthcare in the world.
But government regulators can’t have their cake and eat it too.
To preserve the pipeline of new innovative treatments, therapies, and vaccines, drug companies must have the opportunity to recoup investment rather than being forced to sell products at below market rates. Unlike Uncle Sam, businesses don’t have the option to continuously spend beyond their means and take on trillions of dollars in debt.
The Biden administration doesn’t seem to grasp this concept. The White House’s price control scheme—approved by his allies in Congress—is moving forward at full steam ahead. As a result, the free-market incentive to create new medicine will fade—compromising the health of future Americans.
In fact, a study released in June finds that IRA price manipulation is expected to slash the number of new drugs coming to market by 40 percent over the next decade. It’s not difficult to imagine considering Uncle Sam is robbing research and development budgets at gunpoint. Earlier this year, former FDA Commissioner Scott Gottlieb also warned the legislation’s price fixing component could exacerbate drug shortages.
Smart policymaking that helps address high drug costs is warranted and welcome. But government price controls that threaten the free market and American health are not. President Biden should be encouraging medical innovation, not slowing it down.
Dr. Tom Price served as the 23rd U.S. Secretary of Health and Human Services. He is a senior healthcare policy fellow at the Job Creators Network.
