Senate HELP Committee to Hold Hearing on Making Health Care Affordable

Today, the U.S. Senate Committee on Health, Education, Labor, and Pensions (HELP) will hold a hearing entitled, “Making Health Care Affordable: Solutions to Lower Costs and Empower Patients.”

ATR encourages Senators to explore effective ways to lower costs and empower patients: deregulation, expanding health savings accounts, allowing for alternative healthcare models, streamlining the drug approval process, etc.

During this hearing, however, we expect progressive members – namely, Senator Bernie Sanders (I-Vt.) – to push for problematic policies like expanding drug price controls, most-favored nation drug pricing, and/or international reference pricing.

The Left’s “solutions” to high drug prices, all of which are price controls, would leave Americans with little access to new cures and treatments, would neuter medical innovation, and would eliminate America’s competitive edge in the development of new drugs and therapies.

While the idea of simply “lowering prescription drug costs” through blunt force can be attractive, behind each of the drugs subject to price controls are companies that do vital work in medical innovation. When extorted by the U.S. government, they will have to make up lost costs elsewhere: reducing investment in R&D projects.

Price controls radically increase the financial risk companies take on when they start to develop new drugs. Notably, in an industry like drug development, the risk is already very high.

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. Even so, most drug development programs fail. 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.

Drug Price Controls in the IRA

The Inflation Reduction Act gave the Health and Human Services Secretary the authority to “negotiate” the price of prescription drugs on behalf of Medicare. In reality, the Secretary is given the power to simply determine the price he or she deems acceptable and impose a steep tax of up to 95 percent on companies who charge more. The number of drugs the HHS Secretary sets prices for will increase by 15 in 2028 and 20 in 2029, for, eventually, a total of 60.

A CBO report analyzing the price controls in the IRA found that “about 15 fewer drugs would be introduced over the next 30 years.” While 15 fewer drugs could easily translate into the needless death and/or decline in the quality of life of thousands, this number is still a gross underestimation.  

In fact, one study, conducted by Tomas J. Philipson and Giuseppe Di Cera out of the University of Chicago, details how the IRA’s price control provisions will lower R&D activity so drastically that it will result in 135 fewer new drugs, generating a loss of 331.5 million life years in the United States. The loss in R&D spending on cancer treatments alone will total $18.1 billion annually, wiping out nearly a third of the current annual spending on this research.

Even before implementation, several drug manufacturers warned of development programs they had to end or will likely have to end, including Eli Lilly, Alnylam, Bristol Myers Squibb, AstraZeneca, Novartis, Sage Therapeutics, Amgen, etc.

Even so, politicians like Senator Sanders still insist that we must expand the “negotiation” program created in the IRA.

Problematic Drug Pricing Models

A Most Favored Nation (MFN) drug pricing model would surrender to foreign freeloading by basing U.S. prices on the prices of countries with socialist policies. This is similar to international reference pricing, a policy Senator Sanders has also long pushed for and proposed in the Prescription Drug Price Relief Act.

In addition to doing nothing to address foreign freeloading, MFN drug pricing will reduce access to new cures and reduce U.S. global competitiveness, capitulating to China.

While supporters of these policies correctly identify the unique problems facing the American health care system – namely, wealthy countries paying artificially lower prices for prescription drugs than the U.S. and the fact that this depresses innovation and inflates our costs – MFN/reference pricing would not solve these problems. In fact, it would exacerbate them.

Further, 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 – evidently, their hands are tied. In reality, the reason foreign countries pay less for medicines is simple: 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.

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.

The U.S. is a world leader in research and development because the healthcare system rejects European-style price controls and regulations and encourages innovation. As a result, a majority of new medicines are developed and launched in America.

This innovative environment is enormously beneficial to the long-term well-being of Americans and the efficiency of the U.S. healthcare system. Both IRA price controls and oppressive pricing models would undermine the most effective aspects of our healthcare system. All freedom-loving Senators should push back on these deliberate steps towards socialism.