President Biden’s terrible, horrible, no good, very bad drug price controls

Taxpayers Protection Alliance (TPA) Policy Analyst David B. McGarry was published in Washington Examiner this week to discuss President Biden’s push for prescription drug price controls. 

The Inflation Reduction Act empowered the Department of Health and Human Services to impose de facto price controls on prescription drugs provided through Medicare . President Joe Biden ’s administration announcedthe first 10 covered drugs last week. This program, which weds petty tyranny with grand larceny, fails on economic, public health, and constitutional grounds.

The IRA, which did nothing to curb inflation, seems misinformed of many ordinary words’ meanings. It says Medicare will “negotiate” drug prices with manufacturers. But the process involves “negotiation” only in the sense that an armed mugger “negotiates” for his victim’s wallet. Companies cannot contest the prices HHS will unilaterally set, and the IRA explicitly insulates the agency’s determinations from judicial and administrative review.

The IRA requires HHS to demand at minimum a 25%–60% discount from market rates, and it encourages the agency to gouge even deeper. Moreover, officials may make these determinations arbitrarily — and without soliciting public comment.

Should firms balk, they must either remove all their products from Medicare (Parts B and D) and Medicaid or submit to a so-called “excise tax.” The former option constitutes an economic impossibility for drug companies and a potential medical crisis for their patients. Washington has acquired ineluctable market power. Medicare Part D and Medicaid patients amount to nearly half of American prescription drug spending, and drug companies cannot afford to boycott its markets.

“Excise tax” is another misleading label since this charge functions less as a tax than as a punitive deterrent. According to the Congressional Research Service , “The excise tax rate would range from 185.71% to 1,900% of the selected drug’s price depending on the duration of noncompliance.” The Congressional Budget Office and the Joint Committee on Taxation estimate the tax would generate no revenue — for no drug company could ever pay so excessive a penalty. Thus, the federal government has barricaded the pharmaceutical industry’s escape at both front and back doors.

While populist politicians and commentators enjoy decrying “Big Pharma,” “corporate greed,” “price gouging,” and the like, high drug prices in fact stem largely from high development costs. Stifling, risk-averse federal drug-approval regimes have foisted vast monetary and paperwork burdens on would-be innovators. However, rather than deregulating to lower the costs it imprudently imposed, the federal government now seeks to strip drug companies of their financial incentive to innovate.

…Continue reading on Washington Examiner 

This issue is getting increased attention on Capitol Hill. TPA sent a letter to thank House Oversight Health Subcommittee Republicans for holding a hearing today titled “The Inflation Reduction Act: A Year in Review” and continuing dialogue on the adverse consequences of the legislation’s price controls for American patients. 

TPA’s full letter can be read here or below.