Freedom Line Blog

For years we’ve warned how drug price controls – as with price controls on any product or service – don’t reduce prices so much as they inevitably cause shortages and stifle innovation.

Europe and other advanced economies imposing socialized drug price controls suffer dramatic shortages compared to the traditionally more market-oriented United States, and now in the wake of the misnamed “Inflation Reduction Act” (IRA), the U.S. is already experiencing unprecedented drug shortages.

This is literally a matter of life and death.

A new analysis from Vital Transformation offers the latest detail on how the IRA’s drug price controls, and the proposed “Smart Prices Act” (SPA) seeking to expand them, will stifle innovation in the field of lifesaving pharmaceuticals:

Looking forward, we estimate that the expanded government price setting could result in roughly 230 fewer FDA approvals of new medicines over a ten-year period, once the impacts are fully reflected in the pipeline.  Impacts will be felt most heavily in many areas of unmet need, including rare disease, oncology, neurology, and infectious disease.”  (Emphasis added.)

Indeed, Vital Transformation’s study illustrates how many of the drugs currently targeted by the IRA’s price controls would’ve never come to market had the price controls existed at the time:

Had the drug pricing provisions of the SPA been in place prior to the development of today’s top-selling medicines, we estimate that 82 of the 121 therapies we identified as selected for price setting would likely have not been developed.”

In addition to price controls’ impact on lifesaving drug innovation, the new study also helpfully highlights the negative economic and job effects of these price controls on the U.S. economy and employment market:

We modeled the impacts on industry revenues and future R&D investments and estimated future lost innovation impacts including the impact on industry jobs.  We estimate a loss of between 146,000 – 230,000 direct biopharmaceutical industry jobs and a total of 730,000 – 1,100,000 U.S. jobs across the economy if the proposed IRA expansion were to be implemented.”

All of this, of course, simply confirms what analysts have known for decades.  A 2021 University of Chicago study warned in equally stark terms how drug price controls will dangerously reduce drug innovation and availability:

The United States has far fewer restrictions on price controls than other countries, but the Biden Administration has announced their goal to lower drug prices through greater price regulation.  …  [N]ew drug approvals will fall by 32 to 65 approvals from 2021 to 2029 and 135 to 277 approvals from 2030 to 2039.  These significant drops in new drug approvals will lead to delays in needed drug therapies, resulting in worse health outcomes for patients.”

Believe it or not, even the United Nations World Health Organization (WHO) issued the same warning of the deadly consequences of government price controls and weaker patent protections:

[P]rice controls, combined with the threat of market lockout or intellectual property infringement, prevent drug companies from charging market rates for their products, while delaying the availability of new cures to patients living in countries implementing those policies.”

The evidence and real-world impacts are frankly beyond dispute.  Accordingly, it’s now up to reasonable members of the U.S. Senate and House of Representatives to oppose Joe Biden’s proposed 2024 budget and the SPA and avert the predictable deadly economically destructive consequences.