Pharmaceutical Price Controls

Impact of Drug Pricing Legislation on Access to Life-Enhancing Drugs

Preview:

High and rising health care costs pose a perennial problem in America. Polling by Gallup consistently shows Americans name health care costs as one of the most important family financial problems. As health care consumes a greater share of the economy, rising health care costs also consistently pose problems for state and federal budgets.

Lately, the cost control solutions offered by leaders in Washington have emphasized policies to bring down prescription drug prices. The Trump administration’s health care agenda focused heavily on lowering drug prices. More recently, Congress and the Biden administration’s Build Back Better agenda relies on lowering drug prices to reduce federal Medicare spending and help fund the rest of the agenda. While the overall Build Back Better agenda stalled earlier this year, the Biden administration continues to prioritize lowering drug prices. In his State of the Union address, President Biden led off his plan to fight inflation with a call to cut drug prices, including a call to let Medicare negotiate lower prices. Most recently, the Washington Post reported in late June that congressional Democrats are working to adopt a drug pricing plan similar to Build Back Better as part of a broader effort “to resurrect their agenda” in July.

The Build Back Better approach to lowering drug prices focuses on creating a federal system of price setting and market limitations in the United States that applies to both the Medicare program as well as the private market. Specifically, these policies would allow Medicare to negotiate and effectively set prices for certain high-cost drugs, require drug manufacturers to pay the federal government rebates when price increases exceed inflation, and redesign the Medicare Part D prescription drug benefit to reduce cost-sharing.

There are clear tradeoffs to an approach that relies on price setting and market limitations to lower drug prices. While lower prices will lower health care spending, they are also expected to make investments in research and development (R&D) less attractive and reduce the development of innovative new drugs. It would also negatively impact the U.S. drug industry’s global leadership position, giving China the opportunity to control a greater share of the market and undermine U.S. foreign policy interests.

This report examines these tradeoffs and concludes, overall, the loss of new, life-enhancing drugs and the negative impact on U.S. interests outweigh the possible benefits of Build Back Better’s drug pricing policies

A full copy of the report can be viewed here.