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Prescription Drug Cost Provisions Rolled into Spending Bill

Health

Person picking up a prescription | Image by Shutterstock

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Prices for prescription drugs have been on a historic rise in the United States, even as President Joe Biden’s administration moves to limit the cost of some prescription drugs as part of his massive, recently-passed spending bill.

A 2019 study found that 79% of Americans considered U.S. prescription drug prices to be “unreasonable.” Data released by the Patients for Affordable Drugs (PAD), a patient advocacy group, indicate that domestic pharmaceutical companies increased the costs of different drugs a total of 1,186 times this year.

It is estimated that roughly three-quarters of worldwide pharmaceutical company profits are generated in the United States.

The Biden administration pushed to include measures to limit the prices of certain prescription drugs in the recently-passed Inflation Reduction Act.

Biden and leading Democrats claimed that the enormous spending bill caps the cost of a month’s supply of insulin at $35, phases a cap in for Medicare recipients’ out-of-pocket costs, forces pharmaceutical companies to pay rebates to Medicare recipients if drug costs rise faster than inflation, and requires Medicare to “negotiate” with pharmaceutical companies over the price of certain “high-cost” drugs.

Sen. Mitch McConnell assailed the prescription drug provisions of the Inflation Reduction Act, claiming, “[The] policy would bring about a world where many fewer new drugs and treatments get invented in the first place, as companies cut back on [research and development].”

He and other legislators also criticized how the seemingly-unrelated measures and similarly irrelevant climate provisions were crammed into a bill supposedly intended to tackle inflation specifically.

Still, as unpopular as high prescription drug prices can be, many experts and policy analysts argue that the high prices could be necessary.

According to economists Paul B. Ginsburg and Steven M. Lieberman, government attempts to reduce prices would decrease manufacturers’ incentive to continue researching and developing medications, as McConnell has pointed out.

“The prospect of large profits, which translate into high returns on investment … attracts the private capital that finances pharmaceutical innovation,” Ginsburg and Lieberman wrote for the Brookings Institute.

In a different article in Health Affairs, the two economists claimed, “U.S. pharmaceutical companies invested an estimated $80 billion in 2018 in drug research and development … and such spending yielded an annual average of 44 new drug approvals from 2015 to 2019.”

Patients for Affordable Drugs (PAD) identified 133 pharmaceutical products with “distinct price hikes” greater than $1 between June 24 and July 5, 2022.

Many of the products identified by PAD had a 4-5% increase, while some brand-name drugs saw more substantial price increases, like AK-Fluor and Acetaminophen-Codeine, which increased by 26.2% and 89.5%, respectively.

Out of the hundreds of pharmaceutical corporations increasing prescription drug costs, Pfizer led the pack in July with price hikes on 23 medications. The company recorded its highest-ever profits after developing its COVID-19 vaccine.

PAD argues that drug companies should be required to disclose how they go about setting their prices.

“Americans are struggling with record inflation and the continued challenges of a pandemic,” PAD founder David Mitchell said in a statement. “Yet Big Pharma continues to raise drug prices with no regard for the health and financial well-being of Americans.”

Still, as explained by Ginsburg and Lieberman, allowing pharmaceutical companies to set their prices enables rapid drug development and innovation.

In 2020, Fast Company published a defense of “Big Pharma” that cited studies illustrating the adverse side effects of cutting off pharmaceutical profits. The National Bureau of Economic Research found that cutting drug prices in the U.S. by 40 to 50% would lead to 30 to 60% fewer research and development projects.

Another study found that Germany lost 23,000 pharma jobs after implementing price controls in the 1990s. Germany then slipped from first to third among the continent’s top drug innovators.

The nonpartisan Information Technology and Innovation Foundation concluded in a white paper in 2019 that “an overwhelming body of academic research shows that price controls will significantly restrict the number of new drugs in the future.”

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