How The Republican House Can Prevent Medicare Price Controls From Becoming Death Sentences

The Inflation Reduction Act’s (IRA) drug pricing provisions will severely curtail life-science research.

The IRA vests the Centers for Medicare & Medicaid Services with the power to impose price controls on an ever-expanding list of drugs. The direct result will be that seniors today — as well as future generations of patients — will lose out on access to life-saving cures because those treatments will never be developed.

Until the political balance in Washington changes and this deadly folly can be repealed, the name of the game is limiting the damage. That task will fall to the House Republican majority, which can use its oversight authority to prevent Biden administration officials and federal bureaucrats from exercising their worst impulses in implementing this debacle of a policy. 

Beginning this year, a new panel of federal officials will choose 10 brand-name drugs on which to impose price controls, with more to follow each year. They’ll choose the first 10 out of a pool of 50 drugs Medicare spends the most on in Part D, the prescription drug benefit for seniors. 

But price controls have knock-on effects. Drug makers depend on the returns from their successes to fund research and development into the next generation of medicines. Since the IRA became law, many major drug makers have already discontinued research and trials for new medicines because they have no hope of recouping upfront research costs, let alone earning a return, under the new price-control scheme.

In November, Eli Lilly announced it would stop testing a cancer drug it had already spent $40 million acquiring the rights to develop. In a statement, Lilly said, “the program’s future investment no longer met our threshold” due to the IRA. 

Novartis warned regulators of the “unintended” consequences of the IRA. The law allows the government to subject small-molecule drugs to price controls nine years after FDA approval. Novartis says that provision threatens the viability of its research into mRNA-based therapies.

Uncertainty over the law’s implementation has also stalled drug companies’ decision-making. At a recent industry conference, executives cited the inability to forecast future prices as an obstacle to choosing which treatments to pursue. 

Still others have had to change strategies completely. The nine-year window of pricing freedom for small-molecule pills contrasts with a 13-year window for “biologic” drugs, which are manufactured in living organisms. Companies that previously focused on small-molecule drugs may switch to biologics, industry insiders say, because the extra four years or pricing freedom could yield a significant chunk of additional revenue. 

House Republicans must shine a light on this unfolding disaster. GOP leaders are reportedly planning to do just that through extensive hearings on the implementation of the IRA by the Centers for Medicare & Medicaid Services.

The IRA’s price controls harken back to the Nixon administration’s strategy of trying to rein in inflation by imposing wage and price controls. The result was a decade of “stagflation” — low growth with higher prices, shortages, high interest rates, and declining innovation.

This month, President Biden proposed levying price controls on even more prescription drugs than the IRA provides for. It’s on House Republicans to show the public just how disastrous these command-economy principles will be.

The GOP will be busy.

Sally C. Pipes is president, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All (Encounter 2020). Follow her on Twitter @sallypipes.