Biden’s Drug Price ‘Transparency’ Rule Is Just Back-Door Price Controls

The Centers for Medicare & Medicaid Services just proposed a rule supposedly designed to improve transparency in Medicaid.

That’s hardly the real objective, however. The proposal is a back-door effort to expand price controls in Medicaid and beyond, a surefire way to derail the next generation of medical breakthroughs.

The CMS rule would require certain drug makers to participate in annual “price verification surveys.” The agency claims the surveys will shed light on why certain drugs are priced the way they are. The kicker is that through this “survey” process, drug companies would have to share proprietary and confidential data with the government.

CMS has offered drug makers an escape route, however — much the way blackmailers and extortionists offer their victims a way out. All a company has to do to excuse itself from these annual audits is agree to set its drug prices at whatever level the government deems fair — or, as an alternative, to hand over larger rebates to Medicaid. It’s an offer they can’t refuse.

Those who don’t play ball and cut prices “voluntarily” can look forward to selective release or leaks of confidential material that activists will pounce on to apply outside pressure on prices.  

This is a flagrant abuse of government power. But more worrying still is the harm the rule would do to patients.

The expansion of price controls will immediately reduce the funds research companies have to invest in the development of new medicines. The prospect of future price controls will also scare venture investors away — critical funders of early-stage development work. In a press release, CMS glowingly characterized its new proposal as a complement to the price-setting provisions of President Biden’s Inflation Reduction Act. But scholars predict that the IRA’s price controls will reduce spending on R&D by 18.5%, resulting in 135 fewer new drug approvals by 2039.

Considering just how risky and expensive drug development is, the number of new treatments we’re forgoing could be even higher. Of all new drug candidates that enter clinical trials, only around 1 in 10 goes on to receive FDA approval. Accounting for the cost of failures, the total investment needed to bring one new medicine to approval is close to $3 billion.

For companies or investors to assume that level of risk, they need to know that they will have the ability to bring their new drug to market at a price that reflects this expensive development process. But when the government gets involved in that conversation, the odds that future drug development efforts will continue with the same fervor drop dramatically.

Meanwhile, as far as out-of-pocket drug costs go, the proposed CMS rule offers patients basically nothing. Proceeds from the added rebates or price caps would flow back into government coffers — not to patients. But don’t expect CMS to highlight that in its press releases.

Several pharmaceutical companies have already announced plans to pare back R&D in response to the Inflation Reduction Act’s price-setting provisions. It’s frightening that the Biden administration seems so cavalier about punting the future of medical innovation into unknown territory. Many of the drugs lost to these misguided policies would have treated serious ailments like cancer, or rare diseases — over 95% of which lack a single FDA-approved treatment.

Everyone is in favor of transparency. But that doesn’t mean the government should use the coercive threat of snooping to further a hidden agenda. The CMS rule is a thinly veiled effort to expand the power of the government to dictate prices, with no regard for the long-term interests of patients.

Peter J. Pitts, a former FDA Associate Commissioner, is President of the Center for Medicine in the Public Interest, a Visiting Scholar at the New York University School of Medicine (Division of Medical Ethics), and a Visiting Professor at the University of Paris School of Medicine.