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Familiar complaints and distortions with little merit from the pharmaceutical industry

Senior executives from large pharmaceutical manufacturers issued a letter attacking the prescription drug provisions of the Inflation Reduction Act of 2022. The letter contains a set of falsehoods and exaggerations to undercut a policy that will benefit taxpayers, premium payers, seniors/people with Medicare and other consumers of prescription drugs with at most a minimal impact on the availability of new cures. 

The letter’s opening salvo claims the act represents an attack on innovation and claims the credit for the rapid development of products to address COVID-19 for the industry.  That success happened because of government involvement in prices, sales, and science. The government had long invested in the research that underpins both the Moderna and Pfizer vaccines. Moreover, the government guaranteed sales at a negotiated price that made Americans healthier and the gave the developers big profits. The case of vaccine development for COVID is exhibit A of how government-industry negotiation can work.  

The letter also asserts that the number of new drugs will decline and “break through therapies start slipping away”. The Congressional Budget Office notes that over the next 30 years we can expect about 1,300 drugs to come to market. The impact of the act would be to reduce that number to 1,285 about a 1 percent change over 30 years and only a reduction of two in the next decade, five in the following decade. This is the result of the innovation protections contained in the act. They include exclusion of small biotechnology companies, the source of most new products; exemption from negotiation for products during the first nine to 13 years on the market a more than adequate time for new cures to recoup their investments; and exemption of biosimilar products to bolster that new market.   

The letter claims that there would be a potential loss of 100 drugs over 20 years. This number is based on a selective “synthesis” of research literature on how the number of new drugs responds to increased drug company revenues. Rather than re-analyze the data and replicate the studies and project, the authors made up their own projection. The results are in sharp contrast to the CBO results that used much of the same research to make their projection. It also runs counter to research that replicated earlier findings on the impact of changes in revenues and implied modest reductions in new products and showed that there was very little effect on the supply of new cures

Finally, the letter overlooks numerous provisions of the Act that would benefit consumers and the industry. In the assessment of consumer benefits, the letter points to the out-of-pocket caps for Medicare beneficiaries as the only source of improved affordability. Yet the letter ignores the impact on future prices stemming from limits on price increases, the increased affordability from reduced prices due to negotiation, and the caps on out-of-pocket costs for insulins for Medicare beneficiaries. These ignored provisions will put hundreds of million dollars back into the pockets of consumers. Finally, the letter fails to mention how all these provisions will boost demand for prescription drug products that will also generate new revenues and profits for drug makers. 

The Inflation Reduction Act achieves a sensible balancing of savings to consumers and taxpayers with protection of innovation incentives. One should not be swayed by a self-serving set of falsehoods, exaggerations, and muddled analyses in considering the advances offered by the act. 

Richard Frank is director of the USC-Schaeffer Initiative on Health Policy at the Brookings Institution and former assistant secretary for Planning and Evaluation at HHS. 

Tags drug pricing Inflation Reduction Act price caps

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