The Drug Reduction Act
After the Inflation Reduction Act passed last summer, even many of its supporters quickly stopped calling it that, admitting implicitly that the law had little or nothing to do with inflation. The naming of the bill seems to have been mainly a way of getting Joe Manchin, a Democratic senator from West Virginia, to give the bill its crucial fiftieth vote (with a tie that was broken by Vice President Kamala Harris). After the bill was signed, proponents typically referred to its provisions aimed at reducing the warming of the Earth. Why both that part of it, and the alleged reduction of inflation, were trivial is a story that I’ve already told.
Instead, I want to focus on the provisions about drug prices. Those provisions were strong and will have a large negative effect on drug discovery. For that reason, the law could more appropriately be called “The Drug Reduction Act.” The main people who will be hurt by this law are those who use drugs the most, the elderly, of whom I count myself a member.
These are the opening two paragraphs of David R. Henderson, “The Drug Reduction Act,” Defining Ideas, December 15, 2022.
As Charles Hooper and I wrote in September,
Where CMS [the Centers for Medicare and Medicaid Services] is concerned, “negotiations” is a Godfather-esque euphemism. If a drug company doesn’t accept the CMS price, it will be taxed up to 95 percent on its Medicare sales revenue for that drug. This penalty is so severe, Eli Lilly CEO David Ricks reports that his company treats the prospect of negotiations as a potential loss of patent protection for some products.
All that’s missing is the horse’s head in a CEO’s bed.
In short, the federal government will now start acting like many other governments around the world, using the threat of force to get prices down to what it thinks is reasonable. I feel bad for drug companies because I feel bad for anyone who produces a product to help us and gets punished for doing so.
But even if you don’t feel bad for drug companies, you should feel bad for yourself. The reason is that the federal government will be forcing down prices on an increasing number of drugs and those drugs, given that they’re covered by Medicare, are the kind that we seniors disproportionately use.
Read the whole thing.
Dec 21 2022 at 2:22pm
Effectively, price control will cause government induced shortages. If high cost producers are forced to accept lower prices, they will not be compensated for the risks associated with producing new compounds. Why would any rational CEO expose his firm to risks without the proportional expected returns
Dec 21 2022 at 4:12pm
This penalty is so severe, Eli Lilly CEO David Ricks reports that his company treats the prospect of negotiations as a potential loss of patent protection for some products.
Oh, let’s look on the potential bright side. Maybe the Pharma companies will get so good at making strategic political donations, hiring politicians’ relatives and paying such well-connected DC lobbyists that they’ll achieve regulatory capture with the CMS negotiators and thereby be able to change enough for via political pull to justify drug discovery.
Dec 21 2022 at 5:19pm
Always the optimist. 🙂
Dec 21 2022 at 5:59pm
So was Murphy!
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