The Ripple Effects of Expanding Drug Negotiations Beyond Medicare
By By Saul Anuzis
In last year's scramble to include government price controls on prescription drugs in President Biden's "Inflation Reduction Act," Democrats were willing to say almost anything. They reassured us that their scheme applied only to Medicare and would phase in slowly, with ample opportunity for stock-taking along the way.
That was so 2022. This year, Democrats are letting the cat out of the bag. They want big government to set the prices for most new medicines, including those covered by private insurance plans.
They don't have the votes in Congress to pass their latest plan, but their willingness to propose such a measure with formal legislation should be a wake-up call to everyone opposed to Medicare for All and socialist health care.
First, Senate Democrats brought forth their Strengthening Medicare and Reducing Taxpayer (SMART) Prices Act, which would expand the number of drugs subject to government price controls and start the process sooner. Now, leading House Democrats have introduced legislation that would extend the government price controls from Medicare to the private insurance market.
The price-control provisions of the IRA alone are already resulting in companies rethinking their approach to research and development. Many life-science companies are considering canceling or slowing down early-stage projects due to the looming price controls.
Alnylam recently decided to put its Stargardt disease plans on hold. The CEO of Novartis said in April his company was scuttling work on certain early-stage cancer drugs. The CEO of Genentech said the IRA is negatively impacting the development of a potential development for ovarian cancer.
Drug prices don't stay high forever. Before long, generic competitors come in, driving costs down. Generics now make up 90% of all prescriptions filled. But guess what? If you destroy the incentive to develop new drugs with price controls, you never get a cheaper generic. According to one recent study, the IRA itself could lead to nearly 140 fewer FDA approvals for new medicines over a ten-year period.
If Democrats were really interested in cutting drug costs rather than grabbing power -- which they aren't -- they'd be looking into the middlemen sucking profits out of the supply chain that connects drug makers to patients via their insurance plans. In fact, only 37% of total spending on prescription drugs goes to drug makers.
The real buck-rakers are the pharmacy benefit managers, or PBMs, who manage health insurance formularies and use their enormous buying power to boost their profit margins at the expense of patients.
The problem is that PBMs are compensated based on a medicine's list price, so they tend to prefer the priciest medicines, even if they result in higher out-of-pocket costs for patients. Until PBMs' compensation is delinked from list price, patients will continue to pay more than they should.
The abuse has become so bad that amazingly, PBM reform may be in the cards for Washington this year. As for Democrats' bigger dreams, we've been warned.
Saul Anuzis is President of 60 Plus, the American Association of Senior Citizens.
