Reconciliation Bill Should Improve Medicaid, Reject Price Controls

As the construction of this year’s reconciliation bill ramps up, Americans for Tax Reform urges members of Congress to take a well-measured approach to its healthcare provisions: improving on Medicaid and rejecting leftist price control measures.

While some have been concerned about how the mainstream media will cover conservative Medicaid improvements, it is important to remember that Democrats will villainize this bill regardless of what is in it. To be clear, the discussed improvements are incredibly popular: specifically, a whopping 81 percent of voters support requiring able-bodied adult Medicaid recipients to work in order for them to continue receiving Medicaid benefits.

Simply put, there is no need to compromise on popular reforms with Democrats who have no interest in throwing their support behind good legislation. In this way, lawmakers should reject price control proposals like a Most Favored Nation (MFN) drug pricing model.

Work requirements buttress care for the most vulnerable Medicaid recipients, save the program from financial ruin, and are popular. After Obamacare, which radically expanded Medicaid eligibility, costs have been driven by able-bodied adults, particularly unemployed ones.

According to the Foundation for Government Accountability (FGA), 69 percent of the increased federal Medicaid costs since 2000 can be attributed to Obamacare enrollment increases. A plurality of Medicaid spending (35.9%) has now been diverted to able-bodied adults.

In 2000, there were 6.9 million able-bodied adults on Medicaid. Today, there are 34 million of them. To make matters worse, most are not working. As FGA notes, “Across 23 states with responsive records, a whopping 62 percent of able-bodied adults on Medicaid had no earned income, meaning they were not working at all.”

Over a 10-year budget window, implementing work requirements on able-bodied adults under 60 without young children could save taxpayers $260 billion and increase labor participation, empowering recipients to seek financial independence.

Not only do able-bodied, unemployed adults create a superfluous strain on the Medicaid system, putting its ability to provide for those who need it (and its very existence) in jeopardy, but it also diverts care itself away from the most vulnerable.

Suzanne Blake of Newsweek reports that Medicaid patients have and will continue to lose their doctors. Only 65 percent of doctors said they would continue to take new Medicaid patients, with 8 percent reporting they would no longer accept them. In another survey, 14 percent of doctors report trying to limit their Medicaid patient counts. This will only get worse as reimbursement rates fail to keep up with inflation, another result of – you guessed it – ever-increasing financial strains on Medicaid (i.e. spending on able-bodied adults).

In this way, Medicaid recipients are competing for care, especially in areas without many healthcare providers. FGA reports that over 700,000 “individuals with developmental or intellectual disabilities or other conditions that require special care are languishing on Medicaid waiting lists.” Thousands of vulnerable recipients will not receive care because resources have been diverted away to those who, simply put, do not need it. Since the Obamacare expansion, just under 22,000 Medicaid patients in expansion states died while on a waiting list.

For a long time, Medicaid reform has been treated as radically unpopular and politically “untouchable.” In reality, Americans are receptive to commonsense reforms designed to weed out waste, fraud, and abuse and ensure the program works for those who need it. According to a Paragon Institute survey, the support for work requirements is high, with 81 percent of voters in favor.

Implementing drug price controls, like through a Most Favored Nation (MFN) drug pricing model, for example, would disrupt innovation, would fail to stop foreign freeloading, and would hurt America’s global competitiveness.

MFN would surrender to foreign freeloading by basing U.S. prices on the prices of countries with socialist policies.Supporters of MFN claim the concept will incentivize manufacturers to negotiate better deals. However, this theory is based on the flawed assumption that American manufacturers were not fighting as hard as they could against foreign price controls in past years.

Pharmaceutical manufacturers don’t charge foreign countries less because they like them more – as evidenced, their hands are tied. In reality, the reason foreign countries pay less for medicines is simple: price controls, price controls, and more price controls. There is little or no negotiation between foreign governments and manufacturers, forcing innovators to accept lower prices in a “take-it-or-leave it” proposition.

As established, MFN will not lead to other countries paying more for medicines. Without any wealthy country paying market price for medicines, companies cannot expect to recuperate the R&D costs for the medicines they create. This will depress innovation and cause drug shortages to a degree that is entirely unacceptable.

The Trump Administration has already, rightfully, been skeptical of President Biden’s price controls in the Inflation Reduction Act. Just a few weeks ago, President Trump signed an executive order calling on Congress to correct the law’s “pill penalty,” as it has led to a massive dip in investment in the development of small-molecule drugs.

In an industry like drug development, the risk is already very high. Increasing this risk, with the threat of never recouping R&D costs, will eliminate a significant amount of investment in drug development.

During an average drug development process, a manufacturer must invest an average of $2.6 billion and spend 11.5 to 15 years in research and development. In addition, most drug development programs fail.

As detailed by the Information Technology & Innovation Foundation (ITIF), for 5,000 to 10,000 compounds screened during basic drug discovery phases, 250 molecular compounds (2.5 to 5 percent) make it to preclinical testing. Of the 250 molecular compounds, 5 make it to clinical testing. Thus, as little as 0.05 percent of drugs make it from drug discovery to clinical trials. Of the few medicines that make it to clinical testing, only about 12 percent of medicines that begin clinical trials are approved for introduction by the FDA.

Even if a drug is approved, it is likely that the profits from said drug will not recoup its R&D costs. One study in the Health Economics journal found that 80 percent of new drugs made less than their capitalized R&D costs.

Not only is this lack of innovation a threat to patients and the health of future patients, but it would cause the United States to be a follower, not a leader, in medical innovation. At a time when China is rapidly narrowing the innovation gap, causing our research and development to stagnate or fall would seal our fate as second-best in biotechnology.

In sum, Congress should not harm medical innovation and competitiveness to “sell” the American people on reforms that are already 80-20 issues. ATR urges members not to be swayed by the mainstream media spin, but to ensure this reconciliation bill protects America’s global competitiveness, future health, and most vulnerable Medicaid recipients.