Sally Pipes: "Medicare’s Drug Price Controls Could Actually Raise Prices In The Long Run"

The following is an excerpt from an article by Sally Pipes, Founder & Chair of the Benjamin Rush Institute, published in Forbes. Click here to read the full article in your browser.

Four years ago, on August 16, President Biden signed the Inflation Reduction Act into law. Lawmakers promised that letting Medicare set drug prices would save taxpayers more than $100 billion over a decade.

New research suggests the IRA may accomplish the opposite in the long run.

A study by University of Chicago economist Tomas Philipson and his colleagues estimates that the law’s price controls could raise average lifetime prices for the first 25 medicines selected for price-setting by 19%.

How is that possible? Competition—or a lack thereof. Cutting the revenue a brand-name drug generates today can make its market less attractive to generic and biosimilar manufacturers tomorrow. Fewer competitors after the brand loses exclusivity can mean higher prices for years to come.

Generics are the pharmaceutical market’s biggest success story. They account for nine of every 10 prescriptions filled in America.

A new medicine generally enjoys a period of market exclusivity that gives its developer an opportunity to earn a return on the enormous investment required to bring it to market.

Eventually, the branded medicine loses its market exclusivity. Generic manufacturers can then seek approval to sell competing versions of conventional drugs, while biosimilar manufacturers can challenge biologic medicines.

That’s when competition takes over—and prices can fall dramatically.

Click here to continue reading the full article in your browser.

University of Chicago economist Tomas J. Philipson, who authored the foreword to Sally Pipes’s latest book, The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy—and How To Keep It, has extensively studied the consequences of government price controls on prescription drugs. His research finds that lowering drug prices through government intervention can come at a steep cost to pharmaceutical research and development, and ultimately to the patients who depend on future medical breakthroughs.

In The World’s Medicine Chest, Pipes explores the history of America’s pharmaceutical leadership and explains why policies that undermine the incentives for innovation could jeopardize the development of tomorrow’s lifesaving medicines. For more information on the book, please click here.