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.
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. And they want it starting now.
They hate the market economy and are willing to gut private-sector development of new breakthrough medical treatments.
They don’t have the votes in Congress to pass their latest plan. Still, 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 healthcare.
First, Senate Democrats brought forth their Strengthening Medicare and Reducing Taxpayer 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 extending the government price controls from Medicare to the private insurance market.
Add to these proposals Bernie Sanders’ latest iteration of “Medicare for all,” introduced in the Senate and House in May. It all adds up to a plan to nationalize, banana-republic style, more than one-sixth of the U.S. economy.
And no, they don’t care how their power grab works out in practice. They want control.
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. In April, the CEO of Novartis said his company was scuttling work on certain early stage cancer drugs. The CEO of Genentech said the IRA is negatively affecting the development of a potential treatment for ovarian cancer. Merck, meanwhile, is suing the government seeking to halt Medicare price controls on constitutional grounds.
Not that it matters to our aspiring socialist overlords, but blaming life-science companies for high healthcare costs is way off the mark. In the first place, spending on medicines isn’t an especially large component of the cost of care, less than 15 percent.
Second, new treatments save big money down the line. We can now cure Hepatitis C, and paying for a cure now is a lot cheaper than a lifetime of treatments for a failing liver, potentially including a transplant at a cost that ran nearly $900,000 in 2020.
Third, drug prices don’t stay high forever. Before long, generic competitors come in, driving costs down. Generics now make up 90 percent 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 10 years.
If Democrats were 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 percent of 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 on a medicine’s list price, so they tend to prefer the priciest medicines, even if they result in higher out-of-pocket patient costs. Until PBMs’ compensation is delinked from the list price, patients will continue to pay more than they should.
It’s a regulatory distortion of the market guaranteed to make money for those positioned to exploit it. PBM practices deserve a special file in the annals of Washington rent-seeking: How to Make Billions in Health Care Without Providing Any Health Care.
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.
