The Daily Dish
September 7, 2023
Setting the Record Straight
The campaign of misinformation regarding the drug provisions of the Inflation Reduction Act (IRA) continues apace. A typical effort was published in The New York Times under the headline “The 4 Arguments You Will Hear Against Drug Price Negotiation.” Let’s consider them in turn.
Argument 1: Government-negotiated drug prices will harm innovation and result in fewer lifesaving drugs.
The author actually immediately concedes that this is correct: “Lower prices mean lower profits, and that will be less attractive to investors. Drug development is a risky business, and the appeal for investors is the big potential payoff fueled by higher prices.” The actual argument being made is “the lost innovation is more than offset by the value of savings.” But the actual impact is unknowable, so this amounts to just one opinion not supported by any facts.
Argument 2: Government drug price negotiation is tantamount to price controls.
Actual government drug price negotiation might not result in price controls, but the IRA plainly imposes them. The law establishes a “maximum fair price” (MFP) for each drug. The MFP can be no higher than 40 to 70 percent of the average non-federal price, but can be negotiated lower. That is a price control. Period. The author then acknowledges how much word choice matters: “price controls are controversial and in the current era can be painted as big government. ‘Negotiation’ sounds less harsh.”
Except, of course, it is not a real negotiation. “To be sure, the I.R.A. includes a substantial inducement to bring drugmakers to the negotiating table: a tax of up to 95 percent of a selected drug’s U.S. sales if a company does not comply with the negotiating process. Alternatively, a company can choose not to have its drugs covered by Medicare and Medicaid, though few if any would give up the business.” It’s important to note that the “substantial inducement” is a tax equal to 95 percent of the tax-inclusive price. Unscrambling the tax-on-a-tax, this amounts to 1900 percent of the tax-exclusive price, or the amount the manufacturer receives. Having to fork over $19 for each $1 of revenue would put an end to the drug. That’s not a negotiation.
Argument 3: Negotiated drug prices help the government, not patients.
As we’ve seen, the IRA is not a negotiation. It is price controls plus extortion that has elements that reduce innovation and eliminate access to existing drugs. None of that is good for patients. The author does argue that “Up to nine million Medicare enrollees spent $3.4 billion out of their own pockets in 2022 on the 10 drugs that will initially be subject to negotiation.” Sounds impressive. But that’s $31.48 per month per enrollee or about two Starbucks lattes a week. Giving up life-saving drugs for two lattes is not a great deal for patients.
Argument 4: Having the government negotiate drug prices is unconstitutional.
No. Having the government negotiate drug prices is not unconstitutional. But the IRA provisions very well may be on grounds of free speech, excessive taxation, administrative overreach and the other issues surfaced by the eight lawsuits against the IRA. The courts will decide.
The larger reason that advocates of the IRA must continue to mislead about negotiation is that since the inception of the Part D program the Congressional Budget Office has concluded that giving the secretary of Health and Human Services the authority to negotiate would not affect drug prices. Negotiation doesn’t work, but it sounds less harsh than price controls and ruinous taxation.
Fact of the Day
Medicare’s cash shortfall is responsible for about one-third of the federal debt.
