Federal government interference has massively distorted American health care costs for decades. In his State of the Union address on Tuesday, President Joe Biden noted that the misnamed Inflation Adjustment Act (IRA) will further disrupt medical care costs by “finally giving Medicare the power to negotiate drug prices.” The result is actually the introduction of price control of prescription drugs. And price controls will do to prescription drugs what they do to all other products on which they are imposed: create shortages, queues, black markets and rationing.
Worse, drug price controls will have the additional ill effect of increasing disease, disability, and death while simultaneously increasing overall health care costs. How? Because price controls greatly reduce the incentives for pharmaceutical and biotech companies to research, develop, and introduce innovative new drugs that would prevent and cure disease and reduce overall costs.
These are the conclusions of a November 2021 study by economist Tomas J. Philipson and his colleagues at the University of Chicago, which analyzed the impact of the IRA on biopharmaceutical innovation and patient health. The study calculated that by 2039, IRAs would reduce pharmaceutical revenues by 12 percent, resulting in a $663 billion reduction in research and development (R&D) spending. According to the authors, reduced research and development spending would lead to 135 fewer new drug therapies, resulting in a potential loss of about 331 million patient life years by 2039. By comparison, by January 2022, the COVID-19 pandemic had resulted in a loss of about 13 .5 million life years in the United States.
Biden also asserted that the new prescription drug price controls “will cut the federal deficit, save taxpayers hundreds of billions of dollars on prescription drugs that the government buys for Medicare.” Maybe so, but an August 2022 study by Philipson and colleagues calculated that what Medicare and other health care payers might save on prescription drugs over the next 20 years would be more than offset by increased spending on other types of medical care. care.
That study analyzed data showing that, over time, the development of new drugs significantly reduced overall health care costs compared to what they would otherwise have been. Researchers are finding that the new drugs save money by reducing the need for other expensive treatments such as hospitalization, surgery and disability care. Applying those findings to the consequences of developing 135 fewer drug therapies by 2039, the researchers calculate that “the average increase in total health care spending would be about $50.8 billion over a 20-year period.”
A real way to lower prescription drug prices and, incidentally, slow the growth of health care costs while maximizing patient outcomes is to increase competition. This can be achieved by speeding up Food and Drug Administration approvals and curbing patent abuse and other shenanigans by pharmaceutical companies such as paying potential competitors to delay the introduction of generic versions of their patented drugs. Biden’s drug price controls will instead reduce patient welfare and increase overall health care spending. It is lost on all of us.