It’s been less than a year since Democrats enacted the Inflation Reduction Act, which gives Medicare the power to set the prices of certain medicines.
Those price controls have yet to go into effect. But Democrats already want more. They’ve introduced new legislation that would amp up those price controls — and even permit the government to refuse to cover drugs in order to drive a harder bargain with pharmaceutical companies.
As for the patients who would benefit from those drugs — or may even need them to stay alive? They may end up being collateral damage.
The Democrats’ new price control gambit is the SMART Prices Act, introduced by Sens. Amy Klobuchar, D-Minn., Peter Welch, D-Vt., and 23 of their colleagues. They say their bill would “build on” the IRA.
That law, which President Biden signed last August, subjects 10 medicines to price controls under Medicare in January 2026. The government will set the prices for 15 more in 2027, another 15 in 2028, and 20 more per year in 2029 and beyond.
The SMART Prices Act would take things even further. It would empower Medicare to set prices for 20 drugs in 2026, instead of the current 10 under the IRA. In 2027, that number would jump to 40 — many more than the IRA stipulated.
The new bill would also subject medicines to price controls five years after approval by the Food and Drug Administration. That’s up to eight years quicker than under the IRA and significantly sooner than when generic or biosimilar competitors can enter the market.
This provision would gut the generics industry. Generic firms face substantial upfront costs. They must create medicines that are bioequivalent to the innovative branded drugs they’re copying. And they have to build facilities in which to manufacture them.
They recapture those investments by underpricing their wares relative to branded drugs and capturing a small margin on each sale. Patients, of course, benefit from those lower prices.
But if Washington sets a rock-bottom price on a brand-name drug, there will be no incentive for a generics manufacturer to enter the market.
That’s problematic for several reasons. For starters, the government’s mandated price may not be as low as a competitive market could generate. So patients may end up paying more than they should.
Further, a market without competing drug makers is less resilient. If price controls result in a branded company being the only producer of a drug, then a production issue — say, a hurricane hitting a factory, or an operational problem with manufacturing machinery — could render a drug that patients need inaccessible.
Then there’s the provision of the SMART Prices Act that would allow Medicare to create a national formulary of covered medicines. This proposed change could allow Medicare to decline coverage of an FDA-approved drug solely because of its cost.
It wouldn’t matter if a doctor and Medicare beneficiary agreed that the drug was the best course of treatment. The federal government would have the last word.
This sort of rationing is endemic to any socialized medical system, in which government puts a price on patients’ lives — and routinely decides that innovative therapies are too expensive to cover.
The IRA’s price controls have already led a number of pharmaceutical companies to curtail research into new drugs. Last month, the CEO of Novartis announced that the company would drop a few cancer drugs from its development pipeline. Alnylam cited the IRA when it put development of a rare eye disease drug on hiatus last fall.
How can Democrats look at this decline in drug research — and decide that more price controls are an appropriate response? Patients will pay the price for this misguided approach.
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.