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The Senate Finance Committee will hold a hearing tomorrow on “understanding the benefits of the Inflation Reduction Act.” Expect to hear a lot of rhetoric about how government price setting is providing a financial windfall for Medicare and seniors. But that’s all it is—rhetoric. A few key facts tell a different story.
Fact #1: Government price setting is not leading to meaningful savings. Apologists for government price setting claim the first round of so-called “negotiations” will save an estimated $6 billion. But that’s a bogus number. It’s an estimate of what Medicare would have said if these prices had been in place in 2023. They weren’t. In fact, these government-set prices don’t go into effect until 2026, and over that time, competition would have naturally led to lower prices without government price controls. As drug pricing expert Dr. Adam Fein has noted:
“Alas, these are meaningless figures. The $6 billion is a counterfactual vs. 2023, not a projection for 2026. Many of the 10 selected drugs would have faced generic or biosimilar competition before 2026, which would have reduced net prices without the IRA’s intervention.”
Fact #2: Government price setting is undermining biomedical innovation. The hidden cost of government price setting are patients denied the benefit of future cures and treatments. One study by Vital Transformation estimates that, over the next 10 years, as many as 139 potential treatments will no longer be developed because of the IRA’s price-setting policies. Patients with rare diseases will be particularly impacted, which has led some in Congress to work on a bipartisan fix for the nearly 30 million Americans with rare disorders. As we’ve said before, the law includes some “very damaging parts that will impede the development of newer and better medicines for all,” and it’s up to Congress to fix them.
Fact #3: Government price setting upends the entire innovative ecosystem. At BIO, we represent hundreds of smaller life sciences companies, and many are on the cutting edge of biomedical innovation. Often with no products on the market, these small, scrapy companies rely on venture capital funding and partnerships with larger biopharmaceutical companies to help bring life-changing therapies to patients. The IRA will make it harder for small biotechs to access these financial lifelines.
Fact #4: Government price setting does not provide patients real relief—but insurance reforms do. The one silver lining in the Inflation Reduction Act is a set of modest reforms that improve how insurers and middlemen administer the Medicare prescription drug program. Patients are already experiencing lower costs thanks to a provision that eliminates coinsurance for patients with high drug expenses. Next year, Medicare beneficiaries will experience a $2,000 cap on their out-of-pocket costs for medicines. These are all reforms the biopharma industry has long supported, but more reforms are needed. Independent investigations by the FTC, the House Judiciary Committee, and others have helped expose how middlemen profit by driving up pharmacy costs for patients. That’s why some seniors’ costs are too high, and it’s time for lawmakers to do something about it.
