Bidens Medicare Price Controls Will Hurt Millions of Americans. We can and must do better

Recently, the Biden administration announced that the makers of the first 10 drugs covered by the pricing provisions of the Inflation Reduction Act (IRA) have agreed to participate in what some have called a negotiating program. What the administration has missed is that manufacturers who resist “bargaining” are subject to an exorbitant federal excise tax of up to 1,900 percent on their U.S. sales of their chosen drugs.

Some agreement.

These heavy-handed tactics won’t just hurt the businesses the administration loves to hate. The effects of this coercion will ultimately harm millions of American patients by limiting their access to medications.

The administration and supporters of the IRA are trying to portray it as a boon for American health care. The reality is that this will almost certainly stifle innovation in the pharmaceutical industry. Relying on command-and-control mechanisms that essentially involve controlling prices will lead to shortages of significant – and in some cases life-saving – medicines.

How can we make this statement now? It’s simple: despite repeated attempts by governments for hundreds of years or more, price controls have never worked. Not once.

Price controls can never work because, as economist Hugh Rockoff summarizes, they necessarily distort the allocation of resources. “Price ceilings, which prevent prices from exceeding a certain ceiling, cause shortages. Price floors, which prohibit prices below a certain minimum, generate surpluses.”

In the case of the IRA, harmful pricing provisions undermine the vital work of innovators, who invest significant time and resources – on average 15 years and $3 billion per drug – in developing treatments and revolutionary remedies. According to a University of Chicago study, by 2039, AKI will result in a loss of $660 billion in medical research and development (R&D).

For context, this equates to a loss of approximately 130 new treatments and 330 million collective life years. This grim prediction is gradually becoming a reality, as drug manufacturers are already forced to halt research into certain treatments.

The IRA’s impact on American health care will be amplified in low-income, minority, and other underserved communities. The COVID-19 pandemic has clearly shown that these communities face significant barriers when it comes to accessing quality care. Thus, these communities are often the first victims of shortcomings in government policies and are the first to suffer from actions that have a negative impact on access to care and the quality of care.

Polls show that these Americans understand the consequences of laws like the IRA. A majority of voters of color oppose increased government intervention and price controls when they learn that these policies can delay access to new drugs. Seventy-eight percent of voters of color also agree that the pandemic has made them realize that protecting R&D is paramount to creating innovative new drugs and treatments. Lawmakers should take note.

Yet some in Congress seek to push our health care system further into the abyss through misguided proposals such as the SMART Prices Act and the Lowering Drug Costs for American Families Act, the latter of which would extend price controls to health plans private.

Politicians like to think of price controls as a simple solution to prices they simply don’t like. It is much easier for them to make false promises than to roll up their sleeves to work on legislation that prioritizes increasing access to, facilitating, and reducing barriers to health care. innovation to reduce costs and improve health outcomes for all demographic groups.

The Biden administration is moving forward with implementing the IRA without regard for those who will feel the effects most. But the implications of the law are starting to sink in, and the reduction in medical innovation and access will only snowball from there.

Congress must fulfill its duty to the countless patients who will bear the brunt of this blow to our health care system. Strong, persistent, and substantial oversight is needed to ensure accountability throughout the implementation of this harmful law. Failure to do so would further compromise the ability of the U.S. health care system to save lives.

Mario H. Lopez is president of the Hispanic Leadership Fund, a public policy advocacy organization that promotes freedom, opportunity, and prosperity for all Americans.